Activity in the U.S. services industry edged up in September, but growth is being held back by a supply chain crisis that is driving up prices.
The Institute for Supply Management (ISM) said its services activity index rose to 61.9 in September from 61.7 in August.
Economists had expected the index to fall to 60, according to Reuters data. The service sector is responsible for two-thirds of US economic activity.
Growth for 16 months
“According to the services PMI, 17 service industries recorded growth. The composite index showed growth for the 16th consecutive month after a two-month contraction in April and May 2020,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement. Press.
Nieves, however, noted that challenges with labor resources, logistics and materials still affect “continuity of supply.”
“An improvement is an improvement”
“Improvement is improvement…we will accept it,” said Jennifer Lee, senior economist at BMO Capital Markets, in a research note obtained by Capital.com.
Lee noted that business activity and new orders have picked up, though labor shortages remain a challenge.
A resurgence of Covid-19 from the Delta variant has recently dampened some demand for services such as travel and other in-person and leisure activities.
New orders keep coming
The ISM measure of new orders received by service businesses rose to 63.5 in September from 63.2 in August, as spending gradually shifted from goods to services.
The ISM survey’s measure of supplier shipments, however, fell to 68.8 in September from 69.6 in August. With supply still tight, prices remained high. A measure of prices paid by service industries rose to 77.5 from 75.4 in August.
“Looking ahead, the services sector is expected to continue to expand as consumers’ ability to spend is supported by excess savings and income growth,” Maria Solovieva of TD Economics said in a note.
“Meanwhile, based on the sentiment expressed in today’s report, companies expect to maintain the pace of inventory replenishment and hiring for the time being as demand remains very strong,” said Solovieva.
“Service providers are taking note of the continued strong demand environment…As in manufacturing, supply appears to remain the biggest constraint to growth today,” Wells Fargo economists Tim wrote. Quinlan and Shannon Seery in a note.
The most recent figures suggest that activity has not “significantly stagnated in the sector despite the rise of the Delta variant”, they said.
Comments from ISM respondents from various industry sectors include:
- Finance and insurance: “International and domestic demand remains very strong.”
- Information: “Semiconductor (shortage) impacts server delivery. Alternate parts and engineering efforts are used to create workarounds.”
- Utilities: “We continue to face extended delivery times and high costs. The stress on the supply chain is beginning to be reflected in the quality of products offered and delivered. The current purchasing strategy is to wait — except for equipment, as (price) increases are expected.”
- Retail business: “Always in very high demand. The supply chain remains a challenge.”
- Construction: “Logistical constraints in terms of cost and availability continue to be an issue.”