US Service Sector Battles Supply Snarls And Delta In September

The US service sector grew only slightly in September as businesses dealt with supply issues and the Delta variant of Covid-19, an industry survey said Tuesday.

The Institute for Supply Management's (ISM) services index was at 61.9 percent last month, above forecasts for a decline but barely changed from August's 61.7 percent reading.

The index was above the 50-percent margin indicating growth, as were important indicators such as employment, which was at 53 percent, although that was 0.7 percentage point lower than the month prior.

Business activity grew more than two percentage points to 62.3 percent, while new orders grew slightly to 63.5 percent.

However, order backlogs rose 0.6 percentage point to 61.9 percent, while prices gained 2.1 percentage points to 77.5 percent amid concerns about inflation.

"We continue to see rising costs for both supply and service inputs" although lead times have shortened even if they remain higher than they were before the pandemic, a public administration firm told the survey.

"The effects of these price increases have the potential to significantly impact our operations through the end of the year, especially if seasonal trends prove exceptionally strong," this firm added.

The service sector is making a recovery after being battered by the pandemic in 2020, but Oren Klachkin of Oxford Economics warned that shortages of staff and supplies along with inflation will keep it from reaching its potential.

"These challenges aren't likely to recede in the very near future," perhaps not until the middle of next year, he wrote in an analysis.

"Solid demand and less Covid wariness will keep services growing, but the expansion will be capped by the supply side's limited ability to meet demand."

The coronavirus was another concern last month, with one wholesale trade business complaining that "inconsistent Covid-19 restrictions throughout the country are creating unstable business conditions that are concerning."

cs/dw