— Supply Bottlenecks, Labor Shortages Continue To Block Quick Recovery
— Service Providers Struggling To Replenish Inventories
By Max Sato
(MaceNews) – The recent spike in Covid cases hurt the service sector in the US in January as the ISM services index fell 2.4 points to an 11-month low of 59.9 from 62.3 (revised from 62.0) in December amid lingering supply chain constraints and labor shortages, according to the latest survey by the Institute for Supply Management released Thursday.
The ISM conducted an annual update on seasonal adjustments.
The PMI (purchasing managers’ index) showed the sector continued growing for the 20th straight month but it posted the second straight monthly drop to the lowest level since 55.9 in February 2021, following three months of improvement to a record high of 68.4 (revised from 69.1) in November.
“Respondents continue to be impacted by coronavirus pandemic-related supply chain issues, including capacity constraints, demand-pull inflation, logistical challenges and labor shortages,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement. “Moreover, the COVID-19 omicron variant has disrupted operations, especially through reduced staffing levels. Despite these impediments, business activity and economic growth continue.”
Supply chain conditions are “getting better but not much,” Nieves told reporters, adding that recovery of jobs is expected to “take some time” as workers with lower paid jobs, particularly at restaurants and retail stores, continue moving into higher paying positions.
The new orders index dipped 0.4 percentage point to 61.7 in January from 62.1 in December. The index for new export orders, which mostly shows conditions among technology and information service providers, plunged 15.6 points to 45.9 from 61.5, indicating contraction.
An information service firm told the survey: “January has been tough, as product quantities intended for holiday sales are just now coming in, inventories of seasonal products are (very) high and now dormant for nine months, cash flow is down, and new orders are delayed. Omicron is keeping between 20 and 25 percent of our workforce out daily. Inflation is a concern.”
Logistical bottlenecks continued to choke the services sector at the start of the new year. The supplier deliveries index stood 65.7, 1.8 points higher than December’s 63.9. A reading above 50 indicates slower deliveries.
Service providers are also struggling to replenish inventories. The inventories index (49.4 in January, up 2.7 points from December’s 46.7) and the inventory sentiment index (47.5, up 9.2 points from of 38.3) remained in contraction or ‘too low’ territory.
A firm in the accommodation and food services said: “We are finding widespread depletion of field service part inventories to sustain factory production of new product orders. The inability to satisfy replacement part demand creates tremendous operational risk.”
“Costs have escalated to what we believe are unsustainable levels,” a construction company told the survey. “Available labor is nonexistent, so we have cut staffing and are taking on fewer projects temporarily in an attempt to reduce cost.”
Contact this reporter: max@macenews.com
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