Activity in the US services sector is robust, but perhaps cooling at the margins.
That’s one takeaway from this week’s only top-tier (or pseudo-top-tier) data release in the US.
ISM services printed 60.1 for June (figure below), a considerable downside miss. The market wanted 63.5. The range, from five-dozen economists, was 61 to 65.5, so the actual print trailed even the most pessimistic guess.
This comes on the heels of a (slightly) disappointing ISM manufacturing report last week.
The headline print is hardly “bad.” It’s just not as scorching as it was. “The market has been focused on the prospects for the service sector to extend the gains in real GDP seen early in the year and this report confirms that upward momentum remains in place — even if at a slightly less breakneck speed,” BMO’s Ian Lyngen said.
The breakdown shows price pressures persist and, like its manufacturing counterpart, the services employment gauge dipped below the 50 demarcation line in June (figure below).
Respondents said it’s becoming “increasingly difficult to find qualified candidates to fill open positions.” Workers, survey participants said, “have been somewhat slow to return to work, and there has been turnover as some pursue new opportunities in a hot jobs market.”
That latter bit is key. I mentioned previously that it’s not at all uncommon for services sector workers to have college degrees. Depending on your circumstances (particularly the cost of living), it’s possible for college graduates (and here I mean those with bachelor’s degrees — the situation obviously changes if you have a more advanced degree) to make more in the services sector than they would shopping their increasingly useless (and increasingly expensive) paper certificates to employers in other industries.
The pandemic may have changed that, though. It’s not so much that liberal arts degrees are suddenly “in-demand.” Rather, it’s that the proliferation of work-from-home arrangements combined with labor shortages across industries, means someone who’s overqualified for, say, a bar manager position, might now be able to leverage a previously useless degree to obtain a higher wage working from a home office.
In any event, other anecdotes from the June ISM services report centered mostly on price pressures and supply chain disruptions.
Notably, the featured quote from Accommodation & Food Services read:
Our restaurants are quickly — maybe too quickly — returning to 2019 sales levels. Strong consumer demand for dining out is clearly evident as COVID-19 restrictions ease, but the challenges are supply chain outages, logistics delays and employee- and management-staffing constraints. Some locations cannot open for business or (have) limited hours, as we cannot staff the restaurant to meet consumer demand.
There’s quite a bit of useful information packed into those three sentences.
Recall that even with June’s gains, employment in food services and drinking places is still around 1.3 million short of pre-pandemic levels (figure below).
As I wrote Friday (and, really, I’ve been penning some version of the same color on this since January), the near 400,000 positions re-lost during November and December (when the US suffered a vicious winter COVID wave), were a significant setback. The psychological impact of that whipsaw is impossible to measure.
Effectively, 10% of the restaurant and bar workers re-hired following the initial lockdowns were let go again during that episode (red in the figure, above). One certainly imagines many of them were inclined to give up on returning to jobs in food service.
Now you’re hearing from employers who can’t open the doors because there simply aren’t enough people willing to make the drinks and cook the food necessary to sate a thirsty, hungry populace suffering from a severe case of cabin fever (and a collective headache that unvaccinated patrons swear isn’t a Delta variant symptom.)
Is this as good as it gets?
“Israel was an early success in the rush to vaccinate its residents but has fully vaccinated just 57% so far, according to Johns Hopkins University, and has primarily used the vaccine developed by Pfizer and German partner BioNTech. That vaccine uses mRNA technology that is also used in the Moderna vaccine, both of which are authorized in the U.S.
The Israeli health ministry said it now believes the vaccine is just 64% effective at preventing symptomatic infections, which compares with the efficacy rate of about 95% in clinical trials back in 2020, it said in a statement posted on Twitter. The vaccine remains roughly 93% effective at preventing hospitalizations and death, the ministry said. Experts have repeatedly warned of the need to vaccinate at least 70% of the world’s population to prevent new variants emerging that may prove resistant to the existing vaccines.”
I was very concerned about Pfizer’s rush to brag about it’s clinical trial efficacy when it had no idea how many participants were actually exposed to Covid. While it was a great headline for the CEO to sell off his shares at a record high to, it was essentially George W. Bush saying “Mission Accomplished” when the Iraq insurgency was just getting started.
These types of announcements reduce faith in vaccines and they create a glaring blind spot for pharma companies to realistically evaluate themselves so that they can produce the most effective medicine possible.
And so here we are with maybe half of the world choosing to get vaccinated with a vaccine that is only marginally higher than that at preventing symptoms. Seems you are right, this is as good as it gets.
I suggest offering a small tax rebate to vaccinated people. I bet that would get vaccine hesitant Republicans to the doctor in droves… 🙂
Brilliant, and make it a felony to lie/forge a vaccine card so they lose their right to vote or own a gun if they caught.
OOOH. I like the “lose the right to own a gun”. No other penalty but that one would sting… Far more than the doc’s syringe… 🙂
Tax credit makes total sense given the cost of treating Covid across economic and health domains … great suggestion …
Thanks. Hopefully someone in the Biden administration take our suggestion up… 🙂
Or a small tax rebate to people working in office (“not from home”)
Something I’ve been looking into: long Covid’s possible effect on labor force participation. Data is only starting to come in, from smaller observational studies and so on, but it looks like anywhere from 10% to 30% of persons recovered from Covid have long-lasting symptoms, with fatigue, neuro, GI, all being reported. If 100 million Americans have gotten Covid (official tally 34 million cases), granted that many or most were not in the labor force (being young or old, etc), that could still be several million Americans with some degree of residual effects that might delay or disrupt their return to work, especially physically demanding jobs.
Resurrecting’s this thread in light of an interesting story from Vanity Fair.
People Get Upset: A Mass Labor Shortage Is Leaving Hamptonites to Fend for Themselves
Sky-high rental costs, a ban on temporary work visas, and an exploding population due to COVID have forced East Enders to mow their own lawns, iron their own sheets, and forego salon appointments. “Everyone’s going for the natural look this year,” says one resident.
BY STEPHANIE KRIKORIAN
JULY 8, 2021
One interesting quote touched on an argument about the dearth of servers raised by our Dear Leader now & then:
“I know a lot of restaurant people who took that time to start doing what they originally wanted to do,” she said. “We all slowed down and remembered that those jobs aren’t who we are. A lot of people I know started doing stuff from home. Small businesses. Online work. Things that can’t be shut down again.”
The story is a little snarky, but it sheds light on something more relevant to investors. Who “summers” out there? Well, it includes the Wall Street strategists who we breathlessly follow. They listen to their family and neighbors gripe about the labor shortage and costs and then suffer from slow service when awaiting their $45 chicken salad sandwich. It colors their world view and gets reflected in their weekly missives.
“Inflation is rampant!” Labor shortages everywhere!” “Everyone is buying a Peleton!”
That said, biased or not, this perspective often dictates market direction.