U.S. Services Growth Picks Up, Supply Constraints Dog Factories

(Bloomberg) — Business activity at U.S. service providers expanded the most in three months, while manufacturing growth cooled on lingering supply and labor constraints that are fueling even greater inflationary pressures across the economy.

The IHS Markit flash services purchasing managers strengthened to 58.2 from 54.9 a month earlier, the group reported Friday. The gauge of manufacturing activity slipped to a seven-month low of 59.2. Readings above 50 indicate growth.

“October saw resurgent service sector activity as Covid-19 case numbers continued to fall, marking an encouragingly strong start to the fourth quarter for the economy,” Chris Williamson, chief business economist at IHS Markit, said in a statement.

“However, while manufacturers also continue to report strong demand, factory production remains plagued by constraints, including record supply chain bottlenecks and labor shortages,” Williamson said.

As a result, the composite measure of order backlogs increased this month to the highest in data back to October 2009, while manufacturing delivery times were the longest in records to 2007.

The pressure on capacity from materials shortages and a snarled transportation network is fueling even faster inflation. The IHS Markit composite indexes for input costs and prices received climbed to series highs.

Service providers were particularly successful in passing along higher costs as the group’s measure jumped 6 points, the most since November, to a record.

Higher materials costs are “feeding through to both higher prices at the factory gate and spilling over into higher service sector prices. Higher wages are also having to be offered to attract or retain staff, adding to the inflationary pressures,” Williamson said.

Service providers did have greater hiring success in the month, with the group’s employment gauge rising at the fastest pace since June.

Meantime, private-sector activity in the euro area slowed to the weakest since April, though it remained above a pre-pandemic average.

French manufacturing output declined at the steepest pace since stringent coronavirus lockdowns were in place last year, while growth momentum deteriorated sharply in Germany, separate IHS Markit purchasing managers reports showed.

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Source: Investing.com