–Price Index Falls for Third Month; ‘Inflation is Peaking’
–ISM’s Nieves: Fed Not Overtightening, Market Reaction Favorable to Latest Hike
–ISM’s Nieves: Services Sector Expects Continued Growth in 2022 on Pent-Up Demand
–ISM: Supply Chain Constraints Keeping Firms from Replenishing Inventories
–ISM: Employment Remains in Contraction Mainly Due to Limited Labor Pool
By Max Sato
(MaceNews) – U.S. service sector growth picked up its pace for the first time in four months in July after hitting the lowest rate in about two years in June, thanks to higher new orders and despite chronic labor shortages and elevated inflation, according to the latest survey by the Institute for Supply Management (ISM) released Wednesday.
The main index, which shows the directional change of economic activity, indicated the sector continued growing for the 26th straight month, staying above the key 50 line. It rose 1.4 percentage points to 56.7 in July from 55.3 in June, which was the lowest since May 2020, when it rose to 45.2 from a recent low of 41.5 in April 2020 (40.1 in March 2009 is the lowest since the inception of the Services PMI in 2008). It followed 1.2-points drops in both May and April. The index remained well below the record high of 68.4 in November 2021.
“The slight increase in services sector growth was due to an increase in business activity and new orders,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement.
The business activity Index stood at 59.9 in July, up 3.8 percentage points from 56.1 in June. The new orders index rose 4.3 points to 59.9 percent after dipping 2.0 points to 55.6 percent the previous month.
But Nieves also noted that services sector continues to face headwinds, saying, “Availability issues with overland trucking, a restricted labor pool, various material shortages and inflation continue to be impediments for the services sector.”
The employment index rose 1.8 points to 49.1 in July but still contracted for the second consecutive month following a 2.8-point drop to 47.5 in June. The backlog orders Index fell 2.2 points to 58.3 in July after rising 8.5 points to 60.5 in June as supply constraints linger.
The supplier deliveries index fell 4.1 points to 57.8 in July after edging up 0.6 point to 61.9 percent in June and easing 3.8 points to 61.3 in May. A reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
“Services businesses continue to struggle to replenish inventories,” Nieves said. The inventories index contracted for the second consecutive month, falling 2.5 points to 45.0 in July after dropping 3.5 points to 47.5 in June.
The prices index fell for the third consecutive month in July, down 7.8 points at 72.3, after sliding 2 points to 80.1 in June and hitting a record high of 84.6 in April
Nieves told reporters that “inflation is peaking” as seen in lower prices for fuels and other refined petrochemical products but comments by business managers show high costs are still hurting the sector.
“Restaurant sales have softened the past few weeks (due to) post-holiday and seasonality factors, but we’re also hearing because of consumer pressures, particularly fuel and food prices,” a firm in the accommodation and food services category told ISM. “Staffing remains a challenge in some markets.”
A firm in the public administration industry reported: “Rising costs across the board seems to be the big focus now. Fuel and food are the most common focus but it is across the board, and there is pressure of a job market shortage for qualified workers to increase wages and other benefits.”
Asked whether he sees any possibility of over-tightening by the Federal Reserve that could hurt the economy, Nieves replied, “I don’t think so. The markets reacted favorably (to the latest rate hike).” The Fed is trying to cool off high inflation, he said.
The real-estate has seen a pullback in demand not just because of higher mortgage rates but also due to high costs and shortages of materials during the pandemic, Nieves said.
“Interest rates have significantly impacted the homebuilding market,” a construction firm told the ISM. “Cancellation rates have increased, as homebuyers can no longer afford the monthly payment. Traffic to our communities is down. Inflation has sidelined many would-be buyers.”
A company that offers business management and support services said: “Can feel the economy weakening. Clients are making appropriate moves in anticipation of a recession.”
Compared to the services sector, the manufacturing sector typically goes into plant closure in the summer months, and thus shows a pullback in activity, Nieves said.
Looking ahead, he said, business managers in the services sector expect continued growth for the balance of 2022, backed by pent-up demand, although that they continue to face some headwinds.
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Contact this reporter: max@macenews.com
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