Services activity in the United States is progressing; Trade deficit hits record high

WASHINGTON, Oct. 5 (Reuters) – Activity in the U.S. service industry increased in September, but growth is hampered by a persistent shortage of inputs and the resulting high prices as the pandemic continues.

The Institute for Supply Management (ISM) survey on Tuesday reported that “current challenges in labor resources, logistics and materials are affecting the continuity of supply.” Hopes of easing supply chain bottlenecks have been dashed by a resurgence of COVID-19 infections over the summer, driven by the Delta variant. Ports in China and the United States are also experiencing traffic jams.

“Supply chain bottlenecks continue to plague most businesses, causing raw material shortages, logistics problems, higher input prices and labor shortages,” said Will Compernolle, senior economist at FHN Financial in New York. “Service companies still have some distance before capacity meets consumer demand, let alone replenishment of inventory.”

The ISM’s non-manufacturing activity index edged up to 61.9 last month from 61.7 in August. A reading above 50 indicates growth in the service sector, which accounts for more than two-thirds of US economic activity. Economists polled by Reuters expected the index to drop to 60.

Seventeen service industries, including retail trade, construction, public administration, and finance and insurance, recorded growth. Only agriculture, forestry, fishing and hunting experienced a decline in activity.

Accommodation and food service companies reported an increase in transport bottlenecks, which “resulted in longer delays and missed appointments.” Transportation and warehousing companies said “the demand far exceeds the supply of goods and services.”

In the public administration sector, companies complained about rising costs of supplies and services, which they said “could have a significant impact on our operations through the end of the year, especially if the seasonal trends turn out to be exceptionally strong ”.

The summer wave of infections delayed an expected upturn in demand for services like travel and other high-contact activities. Spending is shifting from goods to services as the economy normalizes after being severely disrupted by the pandemic, thanks to coronavirus vaccinations.

The survey measure of new orders received by service companies rose to 63.5 last month from 63.2 in August. Its supplier deliveries indicator fell to 68.8 last month from 69.6 in August. A reading above 50 indicates slower deliveries. With supplies still tight, prices remained high. A measure of prices paid by service industries rose to 77.5 from 75.4 in August.

This reflected the results of the ISM manufacturing survey released last Friday and suggested that high inflation could persist until the end of the year. The Federal Reserve last month raised its projection for its key measure of inflation to 3.7% this year. This was up from the 3.0% forecast in June.

The personal consumption expenditure price index, excluding the volatile components of food and energy, rose 3.6% year-on-year in August – well above the flexible inflation target of 2% from the US central bank. Read more

Wall Street stocks were trading higher. The dollar appreciated against a basket of currencies. US Treasury prices have fallen.

SLOWER GROWTH

But even as the service sector continues to grow, there are more signs that economic growth slowed sharply in the third quarter.

A separate Commerce Department report released on Tuesday showed the trade deficit jumped 4.2% to a record $ 73.3 billion in August. The economists polled predicted the trade gap would widen to $ 70.5 billion.

The report follows government data last Friday showing high inflation slashing consumer spending sharply in July, with a moderate rebound in August.

The Atlanta Federal Reserve expects growth in gross domestic product to slow to an annualized rate of 2.3% in the third quarter. The economy grew at a pace of 6.7% in the second quarter.

Trade subtracted GDP growth for four consecutive quarters.

Imports jumped 1.4% to a record high of $ 287.0 billion, led by consumer goods such as pharmaceutical preparations, toys, games and sporting goods. Imports of industrial supplies and materials also increased.

But a global semiconductor shortage hampering production at auto factories has caused imports of motor vehicles, parts and engines to drop by $ 1.5 billion. The surge in imports, mainly due to the restocking of depleted stocks by businesses, suggests that an apparent slowdown in consumer spending in the third quarter was likely temporary.

Exports rose 0.5% to $ 213.7 billion in August, the highest level since May 2019, thanks to industrial supplies and materials such as non-monetary gold and natural gas. But exports of motor vehicles fell, as did capital goods such as civil aircraft and industrial machinery.

Persistent shortages led to a steady build-up of unfinished work in service industries in September. Businesses continued to hire more workers, although the pace slowed down a bit from August. This probably reflects the difficulties in finding workers.

Indeed, companies complained of “the flight of employees to better paid jobs and the lack of pipeline to replace.” The ISM survey also revealed that “labor shortages (were) experienced at all levels”.

The service sector employment survey measure fell to 53.0 last month from 53.7 in August.

The economy is experiencing a severe labor shortage as the pandemic has forced some people to quit their jobs to become caregivers. Others are reluctant to return for fear of contracting the virus, while some have retired or are looking to change careers.

There was a record 10.9 million vacancies at the end of July. Economists are cautiously optimistic that the labor shortage will begin to ease in the fall and winter after federally funded unemployment benefits expire in September, which businesses and Republicans have blamed it for the labor shortage.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

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