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U.S. Service Sector Hits Record High in October, Manufacturing Continues to Grow

The U.S. service sector grew to a record high in October, the fourth time in 2021, and the manufacturing sector also continued to rise for the 17th consecutive month, according to reports released Wednesday from the Institute of Supply Management (ISM).

ISM's survey of the service industry reached a reading of 66.7, up 4.8 points from September. Readings for business activity, new orders, supplier deliveries and backlog of orders all surpassed previous records.

While the growth in both sectors is a positive sign, persisting supply chain snags, inflation and labor shortages continue to weigh on economic activity. In the manufacturing sector, supplier deliveries are slowing at an increasing rate, with all 18 industries in the sector reporting slowed deliveries.

"The broad picture painted by this report is that the economy is overheating," Stephen Stanley, chief economist for Amherst Pierpont Securities told the Associated Press. "Demand is overwhelmingly strong at the same time that supply is constrained. Still, I am not sure that even a fully-functioning supply side, with more labor and a resolution of snags would be able to handle the pace of demand right now."

Businesses are feeling the pressure of spiked demand combined with supply backlogs. "We have become much more supply driven versus demand driven, due to shortages of labor, materials and freight," said one ISM report respondent in the furniture and related products industry. "Costs continue to increase on all fronts, and we are considering our third price increase of the year for our customers."

"Supply chain disruptions continue to roil new residential construction," said another ISM report respondent in the construction industry. "Material and skilled labor shortages are lengthening cycle times and forcing substitutions."

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Wednesday, 08 December 2021