Markets were treated on Wednesday to more anecdotes from businesses struggling with myriad imbalances created by the pandemic, as service providers aired grievances amid surging demand.
“Concerns regarding labor shortages and unstable supply chains led business confidence to drop to an eight-month low,” the color accompanying the final read on IHS Markit’s US services sector PMI said.
At 58.7, the headline print rose from the flash read, and represented a three-month high (figure below).
Despite familiar concerns around a paucity of available workers and the vagaries of pandemic-disrupted supply chains, activity was robust in October as the impact from the Delta variant waned.
Firms were able to add jobs at a faster pace, but it wasn’t enough to meet demand. IHS Markit noted that October’s survey found respondents “signaling the fastest increase in backlogs of work since data collection began in October 2009.”
Meanwhile, ISM services hit a record high at 66.7. It was the fourth record high of 2021 and exceeded consensus by a country mile (economists were looking for 62).
Both the activity index and the new orders gauge hit records, while suppler deliveries slowed, all reflecting the same dynamics described above. The prices gauge printed 82.9, the second-highest ever.
“Demand shows no signs of slowing,” ISM’s Anthony Nieves said Wednesday. The backlog index hit a record at 67.3. “Services businesses are struggling to stock up,” Nieves went on to remark, noting that inventories and a gauge of inventory sentiment were near record lows for October.
The employment index fell, although it remained in expansion territory. Respondents cited “significant” staffing challenges and turnover, and reported ongoing problems “filling positions, especially front-line.” Drivers, the ISM survey said, “are in short supply.”
Once again, it’s a story of capacity constraints and distortions which, along with 5 million dead globally, will be the legacy of the worst public health crisis in a century.
Although the read-through for the US economy is generally positive (Wednesday’s data suggests the all-important services sector enjoyed robust demand as the fourth quarter got underway), the details and color commentary will do exactly nothing to dispel inflation concerns. We’re still looking at a funhouse mirror.
