WASHINGTON (Reuters) – A measure of U.S. service industry activity hit a record high in October, likely as falling COVID-19 cases boosted demand, but businesses remained burdened by tight supply chains and the resulting exorbitant prices.
The Institute for Supply Management said Wednesday that its non-manufacturing activity index reached 66.7 last month. It was the highest since the series began in 1997 and followed a September reading of 61.9. A value above 50 indicates growth in the service sector, which accounts for more than two-thirds of US economic activity.
Economists polled by Reuters had expected the index to rise to 62.0. The summer wave of coronavirus infections caused by the Delta variant has subsided, encouraging greater consumption of services like air travel and restaurants.
The survey’s measure of new orders received by service businesses climbed to a record 69.7 last month from 63.5 in September. Spending is shifting from goods to services, thanks to coronavirus vaccinations.
Some of the better-than-expected services sector index reading reflects longer delivery times. The survey measure of supplier deliveries accelerated to a reading of 75.6 from 68.8 in September. A reading above 50 indicates slower deliveries.
Longer delivery times from suppliers are normally associated with a strong economy and increased customer demand, which would be a positive contribution to the ISM non-manufacturing index. In this case, however, slower supplier deliveries indicate ongoing pandemic-related shortages.
This was underscored by the survey’s measure of prices paid by service industries, which rose to 82.9 from 77.5 in September. Longer delivery times and higher prices mirrored findings from the ISM manufacturing survey released on Monday and added to signs that high inflation was probably not as transitory as the Federal Reserve thinks. .
The government last week announced a record increase in wage growth in the third quarter. A report released on Tuesday showed that the rental vacancy rate fell in the last quarter. Wages and rents are the stickiest components of inflation.
The Fed is expected to announce on Wednesday that it will begin reducing the amount of money it injects into the economy through monthly bond purchases. Inflation is well above the US central bank’s flexible 2% target.
Due to shortages of raw materials and labour, unfinished work in service industries continued to pile up in October. The pandemic has upended labor market dynamics, leaving employers with 10.4 million jobs to fill at the end of August, even as millions are unemployed.
The ISM survey’s measure of service-industry employment fell for a third consecutive month, while remaining in expansion territory. At first glance, this suggests that national job growth remained subdued in October after employers hired the fewest workers in nine months in August.
Nonfarm payrolls likely rose by 450,000 jobs last month after rising 194,000 in September, according to a Reuters survey of economists. The government will release the October jobs report on Friday.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
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