Service sector

The services sector remains solid despite the grip of inflation

NEW YORK (AP) — Much of the U.S. economy is weathering the highest inflation in four decades and the threat of a potential recession.

Hotels, restaurants and other businesses that provide services managed to continue to gain traction throughout the summer, according to the latest survey from the Institute for Supply Management. The sector has been expanding since May, and August’s gain was the largest so far this year.

“Business activity is the highest since December, a significant stopping point as the consumer showed stable demand for services after headwinds of war, inflation and geopolitical uncertainty,” he said. said Jeffrey Roach, chief economist at LPL Financial, in a note to investors.

Inflation remains Wall Street’s top concern as investors try to gauge how the Federal Reserve will continue with rate hikes to rein in rising prices. But several government reports suggest that inflation may be easing and that some drivers of higher prices, including gasoline and food prices, have also fallen.

For example, the prices paid by purchasing managers have been falling since April. In August, prices hit their lowest point of the year.

“We continue to be very pleased with the recovery and resilience of the business this summer,” Kathleen Oberg, chief financial officer of Marriott International, said at a recent business conference.

The hotel chain’s revenue per available room, a key industry metric, rose 2% globally in July from 2019. A recession would certainly impact the industry, it said. she said, but support from several sectors of the economy remains strong.

“I think you still have pent-up revenge trips, if you will, of people trying to reconcile. You still have excess savings that haven’t been used up. And you also have a very strong job market,” Oberg said.

The airline industry benefited from a surge in demand over the summer, prompting several carriers to give investors encouraging updates on their operations. United Airlines expects demand to remain strong after the summer and has raised its revenue projections for the current quarter.

Restaurant and foodservice businesses are also holding up as consumers continue to spend. Starbucks surprised Wall Street with record revenue in its April-June quarter and noted it had yet to see a measurable impact on sales from inflation.

Investors and economists, however, remain cautious about the way forward for the economy. While services account for around 70% of the economy, their strength has not been strong enough to offset the impact on gross domestic product from supply chain issues that have left many products stuck in factories and on hold. to be shipped.

Inflation appears to be loosening its grip, but the Fed has been resolute in its plan to continue raising interest rates to ensure it gets high prices under control. This could potentially slow the economy too much and push it into a recession.