Restaurants, retailers and other service-oriented businesses that dominate the U.S. economy grew slightly faster in September, suggesting the damage done by the delta strain of the coronavirus is fading. An index based on a survey of top executives in the service side of the economy edged up to 61.9% last month from 61.7%, the Institute for Supply Management said Tuesday.
Any reading above 50% signals expansion, and numbers above 60% are exceptional. The increase was better than Wall Street expected. Economists polled by The Wall Street Journal had forecast the index to decline to 60%. Big picture: The surge in delta cases toward the end of summer kept some people from venturing outside their homes and spending money on dining out, travel, recreation and the like. Some companies might have also briefly delayed plans to hire more workers. Yet with cases rapidly declining, the economy appears to be picking up a bit again as Americans get on with their lives. The biggest problems companies face are obtaining enough supplies and labor to keep up with demand. Widespread shortages have raised costs, delayed production and spawned the biggest increase in U.S. inflation in 30 years. These shortages are expect to persist into next year. “Still experiencing very strong demand,” said a senior retail executive. “Supply chain is still a challenge.” Read: U.S. jobs aren’t coming back quickly, even as millions lose unemployment benefits Key details: New orders and production both increased in September and 17 of the 18 industries tracked by ISM were expanding, a historically high number. Companies still can’t hire as many people as they want, however, and they are paying sharply higher prices for supplies compared to a year ago. They are also trying to charge customers more. The broad increase in prices has spawned the biggest surge in U.S. inflation in 30 years in a potential threat to the U.S. economy. Read: U.S. inflation rises sharply again in August and stays at 30-year high Most economists predict inflation will subside in 2022, but consumers can expect to pay higher prices for many goods and services for the time being. Read: Consumers are paying higher prices due to high U.S. inflation What they are saying? The increase in the ISM index “is a positive in that it suggests that the delta-driven surge in infections that peaked last month has not had much lasting impact on demand,” said senior U.S. economist Michael Pearce of Capital Economics. Market reaction: The Dow Jones Industrial Average
and the S&P 500
extended gains in Tuesday trades. The stock market fell sharply on Monday.