Activity in the US services sector hit an all-time high in March, but the sudden surge in business stretched supply chains and lifted prices, a report said Monday.

The Institute for Supply Management's purchasing managers index hit 63.7, up from 55.3 the prior month, according to a statement. That reading tops the prior record in October 2018.

Both the business activity and new orders benchmarks hit records in March, while employment activity rose for the third straight month.

The report comes on the heels of last week's blowout US jobs report for March, as well as an ISM survey in the manufacturing industry that also showed higher prices as activity rebounded.

"Optimism in higher education that Fall 2021 will be near normal with vaccinated students, employees and staff returning to their roles on campus," an official in educational services told ISM.

"Business is picking up as mandated restrictions seem to be easing and spring is right around the corner," said an official in the real estate, rental & leasing industry.

But the report was not without some warning signs.

Some companies told the ISM they were experiencing increased logistical problems and labor shortfalls that could crimp the recovery.

Services industry activity hit an all-time high in March, but logistical problems at US ports and elsewhere in the supply chain pose risks to the recovery, a report said
Services industry activity hit an all-time high in March, but logistical problems at US ports and elsewhere in the supply chain pose risks to the recovery, a report said GETTY IMAGES NORTH AMERICA / KEVORK DJANSEZIAN

The report also said prices "increased in March and at a faster rate." All 18 sectors surveyed experienced higher prices.

A construction sector official said the industry was faced with building material shortages, shipping delays at West Coast ports and a lack of supplies due to the Texas electricity crisis that curtailed petrochemical plant output.

"We have encountered the 'perfect storm' for building material shortages and price increases," the official said.

Anthony Nieves, chair of the ISM's survey committee, said labor shortages were acute in the food services and hotel industries, especially in states which had imposed aggressive Covid-19 restrictions but are now opening up.

"There's just not the onboarding of workers fast enough," Nieves said.

Still, Nieves said overall the survey constitutes "a very strong report."

Will Compernolle, senior economist at FHN Financial, characterized the report as broadly positive.

"Producers in all services industries are reporting remarkable growth and optimism about the future," Compernolle said, adding that the findings show "services companies are still adjusting to the increased demand."

Coronavirus