It’s the same story over and over again, I’m afraid.
The world’s largest economy is trying to power ahead (or along), but it’s bumping up against capacity constraints.
“US service providers indicated a strong expansion in business activity during September,” IHS Markit said Tuesday, in the color accompanying the final read on last month’s services sector PMI. “That said, the slowest rise in new business for 13 months and labor shortages hampered output growth, as the upturn softened to the weakest in 2021 to date,” the report added.
At 54.9, the final print for September was up slightly from the flash print. Meanwhile, ISM services beat expectations, printing 61.9. Consensus was looking for 59.9. The simple figure (below) gives you a sense of where things stand.
The ISM new orders gauge is essentially stalled at an elevated 63.5. Business activity rose, and the employment gauge remained in expansion territory.
That latter bit is important. August’s job report suggested services sector hiring effectively flatlined during the Delta wave, so any indication (anecdotal or otherwise) that businesses are still hiring is welcome. Of course, none of this will matter come Friday, when September payrolls will either confirm of disconfirm a pick up in leisure and hospitality hiring.
Respondents to ISM’s survey struck a familiar chord. “Business volume has increased slightly, and we are dealing with severe supply chain disruption,” someone said. “New orders have increased due to pent-up demand coming online,” another remarked.
The prices index rose more than two points MoM to 77.5. Anthony Nieves, Chair of the ISM Services Survey Committee, was upbeat but noted that “ongoing challenges with labor resources, logistics, and materials are affecting the continuity of supply.”
At the margin, the data was better than expected. “Overall, a stronger read that implies any potential fallout from the rolling variant risk has yet to meaningfully weigh on service sector sentiment in the US,” BMO’s Ian Lyngen said, of ISM.
Still, PMIs continue to sound like diaries of a pandemic, which I suppose is apt, considering that’s precisely what they are these days.
“High virus case numbers have not only subdued demand for many services, notably among consumers in the hospitality sector, the pandemic continues to hit the labor market both in terms of staff absences amid the spread of the virus and low labor market participation rates meaning it is difficult to fill vacancies,” IHS Markit Chief Economist Chris Williamson said Tuesday.
And so it continues.
