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High prices, shortages plagued US service sector in August: survey

·2-min read
The US service sector was expanding in August, but shortages of labor and materials continued to trouble businesses, an industry survey said (AFP/Patrick T. FALLON)

The massive US service sector continued expanding in August but businesses remained worried about high prices and shortages of materials and labor, although there were signs that situation could be improving, an industry survey released Friday said.

The Institute for Supply Management (ISM) reported its services index was at 61.7 percent in August, just under what was expected and below the all-time high of 64.1 percent in July.

The index was nonetheless well above the 50-percent threshold indicating expansion and in its 15th straight month of growth after the sector plunged last year when the Covid-19 pandemic began.

"There was a pullback in the rate of expansion in the month of August; however, growth remains strong for the services sector," the survey's chair Anthony Nieves said.

Positive trends were seen in shortening supplier delivery times, a sign the supply chain snarls of recent months could be untangling. Prices remained high but fell 6.9 percentage points, and order backlogs also declined.

However, the report showed business activity and production falling 6.9 percentage points from July, new export orders falling more than five percentage points and new orders declining slightly.

Businesses also continued to face complications finding workers and supplies and being able to afford them, a dynamic that first began as Covid-19 vaccinations allowed the economy to rebound strongly earlier this year.

"Supply chain disruptions -- including manufacturing-labor shortages, logistics delays and lack of material to make products -- are significantly disrupting our business," an accommodation and food services company told ISM.

All services industries reported growth in August, with the exception of one: arts, entertainment and recreation, a sector vulnerable to renewed mask-wearing and other restrictions imposed to contain the fast-spreading Delta variant of Covid-19, which is viewed as again threatening the economic recovery.

Kathy Bostjancic of Oxford Economics predicted demand for the service sector will remain strong, allowing it to continue expanding for the rest of the year.

"We do not see the service-side recovery derailed, especially as vaccine rates have risen. However, the Delta variant likely moderately slows the pace of recovery both on the demand and supply fronts," she wrote in an analysis.


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