In a sign of the service sector’s continuing strength, the Services Purchasing Managers’ Index inched up by 0.2 percentage points to 61.9% in September—the 16th consecutive month of expansion, according to data released Tuesday by the Institute for Supply Management.
Business activity, new orders and prices paid drove the increase, pointing to strong demand for services.
Business activity, new orders and prices paid drove the increase, pointing to strong demand for services as pressures from the delta variant have eased.
The business activity index rose to 62.3% from 60.1% previously, while the new orders index inched up to 63.5% from 63.2% previously.
While anything above 49.2% indicates expansion, anything above 60% implies robust growth in the economy.
The increase in the price component also reflected the continuing shortages of labor and input materials, which will keep prices elevated at least until the end of this year. Respondents to the ISM survey indicated that they did not see prices coming down soon.
But even with that cautious outlook, the prices paid index was down significantly to 77.5% from its peak in July, which was at 82.3%.
Also in the report, businesses saw employment activity increase for the third consecutive month as the employment index stayed at 53%.
Still, respondents’ comments revealed that labor shortages continued to be challenging, especially as employees were switching to “better-paying jobs,” and there was a “lack of a pipeline to replace.”
Shortages of semiconductors were cited as the main cause for supply lags and product delivery issues, particularly in the educational services and information sectors.
On the other hand, firms also had to deal with increasing costs for logistics and transportation, while delivery lead times remained challenging.
We expect that the service sector will continue to expand into next year as supply bottlenecks abate, although it might take longer than previously expected as the global economy recovers from the delta variant’s peak.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.