–ISM’s Nieves: Securing Workers Ongoing Issue, Now Spread Across Industries
–ISM: Supply Delivery Delays Worsen Again After Slight Improvement in March
–ISM: New Orders Index Dips to 14-Month Low; Prices Index Hits Record High
By Max Sato
(MaceNews) – US service sector growth slowed in April on wide-spread labor shortages after the first uptick in four months in March amid easing Covid restrictions, with the ISM services index posting the sixth drop in the past 12 months as firms are also hit by rising costs and lingering supply constraints, according to the latest survey by the Institute for Supply Management (ISM) released Wednesday.
The main index showed the sector continued growing for the 23rd straight month, staying above the key 50 line, but it slipped 1.2 percentage points to 57.1 in April after rising 1.8 points to 58.3 in March and falling 3.4 points to 56.5 in February, which was the lowest level since 55.9 in February 2021. The index stood well below the record high of 68.4 hit in November 2021.
The new orders index fell 5.5 percentage points to 54.6 percent in April from the March reading of 60.1. It was the lowest since 53.1 in February 2021.
“There was a pullback in the composite index, mostly due to the restricted labor pool (impacting the employment index) and the slowing of new orders growth,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement. “Business activity remains strong; however, high inflation, capacity constraints and logistical challenges are impediments, and the Russia-Ukraine war continues to affect material costs, most notably of fuel and chemicals.”
The main index was pulled down by a 4.5 percentage point slump in the employment index to 49.5 in April, back in contraction territory, after rebounding 5.5 points to 54.0 in March and falling 3.8 points to 48.5 in February.
“This has been an ongoing issue,” Nieves said, referring to the thorny task of securing quality workers as some people have started their own business, retired or looked for better careers during the pandemic, resulting in higher wage pressure.
“I think it’s across the board,” he said, adding that the tight labor market seen in the construction industry at an earlier stage of the pandemic has now spread to all the other service industries covered by the ISM.
“Talent shortages continue to make it difficult to get work done at companies across many industry sectors,” a firm in the professional, scientific and technical services category told the ISM survey. “Light industrial labor is in high demand, but supply gaps still exist. Wages continue to rise in nearly all labor categories, contributing to the rise in prices of goods and services.”
Companies are also coping with supply delays. The supplier deliveries index rose 1.7 percentage points to 65.1 in April after falling 2.8 points to 63.4 in March and rising in the previous two months. A reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
The imports index has been fluctuating, too, indicating unstable supply chain conditions. It rebounded 7.9 points to 52.9 in April after slumping 6.7 points to 45.0 in March and edging up 0.6 point to 51.7 in February. Supply lines have increased from Asia, with some shipments resumed after the Lunar New Year holidays, while a resurgence in Covid cases has led to lockdowns in Chinese cities, Nieves said.
The prices index hit a record high of 84.6 in April, up 0.8 percentage point from 83.8 in March and surpassing the previous record of 83.9 in December 2021.
“Inflation, supply chain issues and access to qualified workers continue to be issues,” a public administration company said. “There are still lingering effects from the pandemic, although those seem to be subsiding. The future impacts of the war in Ukraine are unclear.”
A construction firm told the survey: “Mortgage rates have skyrocketed. While relatively low from a historical perspective, the new rates — combined with historically high home prices — will temper new home demand at some point over the next 12 months.”
Higher interest rates are affecting the real-estate and stock markets and dampening consumer sentiment while the Federal Reserve is trying to bring high inflation back to target, Nieves told reporters.
“We have to see how it turns out for the next few months but as far as activity (in the services sector) is going, we are still strong right now,” he said.