The service sector appears to have slowed further in February, indicating that the slowdown from the omicron wave of the pandemic has persisted even as the number new cases declined.
The Institute for Supply Management said on Thursday its index of activity in the services side of the economy fell to 56.5 percent last month, the lowest reading since February 2021, from 59.9 percent in January.
Economists had been expecting a rebound to 61 after declines in December and January. Those earlier declines were seen as driven by the omicron variant and many analysts thought they would be reversed in February.
Most of the survey was conducted before the Russian attack on Ukraine. Readings over 50 indicate growth, while readings under 50 can suggest a contraction.
The gauge of new orders received by services businesses dropped to a reading of 56.1 percent, also the lowest in 12 months, from 61.7 percent in January.
The measure of employment, which has been a source of strength since June, declined to 48.5 percent, the lowest since 2020 and an indication that employment fell during the month. That appears to be due to a supply contraction rather than a lack of demand for workers.
“We are experiencing people retiring and/or leaving the company for higher wages and/or work-from-home options,” one employer said.
We are having significant issues with hiring both full time and contract labor,” said a second.
A third commented that: “Open positions are not being filled, and candidates are looking for more money.”
Inflation picked up further. The ISM’s measure of prices paid by services industries rose from 82.3 percent in January to 83.1 percent, the second highest level during the pandemic and third highest reading ever.
The survey’s barometer of supplier deliveries rose to 66.2 percent from 65.7 percent in January, indicating that delivery times grew longer and suggesting ongoing supply chain difficulties.
Some of the comments from various industries:
- “Raw material increases, labor shortages, wage increases and transportation issues are still the primary issues affecting our operations and pricing.” [Accommodation & Food Services]
- “We are getting price increases with no notice. For example, our engineered wood products supplier gave us a 10 percent to 20 percent (based on SKU) increase, effective immediately. We are also struggling to get materials. Suppliers cite poor employee attendance, elevated employee turnover and positions open longer than normal as they struggle to fill them.” [Construction]
- “Staffing shortages, supply chain disruptions and rising inflation continue to impact the world economy. Companies are struggling to hire direct employees and non-employee labor because wages continue to increase for both. The Great Resignation is real: Employees, contractors and consultants continue to quit their jobs and engagements for opportunities that pay more and have more flexible work options. Millions of light industrial jobs remain open in the U.S., with limited interest from job seekers. Severe labor shortages are expected well into 2022. Corporations need to increase wages and salaries to attract talent and get work done. Faster wage growth is expected to lead to increased inflation.” [Professional, Scientific & Technical Services]
COMMENTS
Please let us know if you're having issues with commenting.