The Institute for Supply Management’s measure of U.S. services industry activity hit a record high in July as the strong recovery in consumer demand boosted companies that took a major blow from the pandemic.
The ISM’s non-manufacturing index rose to 64.1 last month from 60.1 in June, beating the record of 64.0 set in May. It was the 14th straight month of growth for the services sector.
Economists polled by Reuters had forecast the index climbing to 60.5 in June.
“Demand is rotating back to services as nearly half of the population has been fully vaccinated against COVID-19, allowing people to travel, frequent restaurants, visit casinos and attend sporting events among services-related activities that were curbed early in the pandemic in favor of goods,” Reuters said.
Government data last week showed spending on services accelerated sharply in the second quarter, helping to lift the level of gross domestic product above its peak in the fourth quarter of 2019.
The ISM’s measure of new orders received by services businesses increased to 63.7 from 62.1 in June. The strong demand, however, is continuing to strain supply chains, with the measure of supplier deliveries rising to 72.0 from a reading of 68.5 in June. A reading above 50 indicates slower deliveries.
“Costs have risen dramatically in the last 45 days. Lodging, fuel, travel and supplies are all rising sharply. Costs for available labor are also rising, as demand increases in a diminished labor pool,” a construction company told the institute.
MarketWatch noted that the current explosion in COVID-19 cases is causing fresh strains on services businesses as governments reinstitute new mask requirements and some locales are requiring businesses to check customers for vaccination cards.
But 17 industries tracked by the ISM reported growth in July while none contracted.
“The economy is literally bursting at the seams, as demand is as strong as I have ever seen it and supply is struggling to catch up,” said Stephen Stanley, chief economist of Amherst Pierpont Securities.