An index measuring the health of the massive US service sector climbed to a new all-time high in July as the economy recovers, data said Wednesday, though supply and labor shortages are holding back some firms.

The Institute for Supply Management (ISM) said its services index was at 64.1 percent last month, higher than the previous peak recorded in May and well above analysts' forecasts.

Business activity, employment and prices all climbed in the month, underscoring the positive impact of Covid-19 vaccines and the end of business restrictions that caused a sharp downturn for the service sector last year.

However deliveries slowed in July and inventories continued to struggle in signs that the supply chain issues that have plagued the reopening economy continued.

"Materials shortages, inflation and logistics continue to negatively impact the continuity of supply," survey chair Anthony Nieves said.

The US service sector is expanding rapidly but businesses are having trouble hiring enough employees
The US service sector is expanding rapidly but businesses are having trouble hiring enough employees AFP / Frederic J. BROWN

Of the 17 service industries surveyed, all reported growth last month, even as businesses complained of higher prices and worried about the fast-spreading Delta variant of Covid-19.

"Surgical volumes continue to increase, reflecting pent-up demand for services. However, the Covid-19 delta variant is impeding our ability to manage increased surgical volumes due to increased Covid-19 case admissions," a health care and social assistance firm told the survey, adding the it was having trouble getting enough of some supplies.

Data showed employment jumping nearly five points to 53.8 percent, returning above the 50-percent threshold indicating expansion.

Business activity as a whole surged 6.6 percentage points to 67 percent, while new orders climbed 1.6 percent to 63.7 percent.

Oren Klachkin of Oxford Economics predicted an ongoing recovery in services in the second half of this year, even if the price increases and shortages complicate operations for businesses.

"We believe the services recovery would be derailed only if a severe spike in Covid cases forces public officials to reinstitute harsh containment measures," he said in a note.

Coronavirus