–ISM: US Service Providers Continue Facing Surging Costs, Supply Bottlenecks
–ISM’s Nieves: Fed Has to Tighten To Keep Inflation From Hurting Economy
–ISM: Supply Delivery Delays Ease in March; Inventories Up but Still Too Low
–ISM: War in Ukraine Pushing Up Prices, Creating Uncertainty for Many Firms
By Max Sato
The main index showed the sector continued growing for the 22nd straight month, rising 1.8 percentage points to 58.3 in March after falling 3.4 points to
56.5 in February, which was the lowest level since 55.9 in February 2021. It was well below the record high of 68.4 hit in November 2021.
“There was an uptick in business activity in March, but respondents have indicated that they continue to be impacted by capacity constraints, logistical challenges and inflation,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement. “Labor shortages have eased slightly, as Covid-19 cases have declined and public-health restrictions have been relaxed. “
“Geopolitical concerns – particularly the Russia/Ukraine war, which has impacted material costs, most notably fuel and chemical prices – have created uncertainty for many businesses,” he said.
The US service sector is “still on the path to continuing growth” despite some headwinds, Nieves told reporters.
People are concerned about rising interest rates but from the broader perspective, the Federal Reserve has to raise interest rates to “stave off inflation” and keep surging prices from hurting consumption, and thus overall economic growth, he said.
There is no universal application of the effects of credit tightening to all industries, but service providers are facing the drag from surging energy and commodities prices, Nieves noted. Lower mortgage rates would be better for real-estate firms but “fortunately they are still going strong” with home resale values rising, he said.
The service sector, which mostly relies on domestic demand, has not been affected so far by a resurgence in Covid cases in other countries, he added.
Logistical bottlenecks remained a headwind for the services sector. The supplier deliveries index fell 2.8 percentage points to 63.4 in March from 66.2 in February. It was an improvement to the level since March 2021 (61.0) but a reading above 50 indicates slower deliveries.
“Long lead times for electronic components are becoming normal and expected,” a firm in public administration told the ISM survey. “Chemical deliveries are often delayed due to a lack of qualified hazardous materials drivers.”
The prices index rose 0.7 point to 83.8 from 83.1 the previous month, reaching its second-highest reading ever, behind December 2021 (83.9).
“Pricing pressures are stronger than ever due to the Russia-Ukraine [war], and energy costs are skyrocketing,” said a construction firm.
Services businesses are continuing to replenish inventories, as the inventories index expanded for a second straight month to 51.7, up 0.9 point from February’s 50.8. The inventory sentiment index at 40.2, down 15.1 points from February’s reading of 55.3, returned to contraction in March, indicating that inventories are in “too low” territory and not meeting current business requirements.
The new orders index rebounded 4.0 points to 60.1 in March after falling 5.6 percentage points to 56.1 in February from 61.7 in January.
The employment index also rose 5.5 points to 54.0 in March following a 3.8-point dip to 48.5 in February from 52.3 in January. But it was still below 54.7 in December 2021 due to the lingering impact of the highly contagious Omicron variant.
“Supply chain challenges continue at about the same levels as last month,”
a company in the accommodations and food services category told the ISM.
But it also said: “Employment has improved as COVID-19 cases are declining. Restaurant sales have improved since Valentine’s Day, with mask and vaccine verification mandates being dropped.”