Growth in services sector hits record high in July

By Martin Crutsinger
AP Economics Writer

WASHINGTON (AP) — Growth in the U.S. services sector, where most Americans work, increased to a record pace in July even as businesses continued to face supply-chain challenges and problems in finding enough available workers.

The Institute for Supply Management reported Wednesday that its monthly survey of service industries rose to a reading of 64.1 in July, up from 60.1 in June. It was the fastest pace since this series began in 2008 and surpassed the old record of 64.0 set in May.

Any reading above 50 indicates growth in service industries.

On Monday, ISM reported that growth in manufacturing had slowed for a second straight month amid ongoing supply-chain problems and labor shortages.

Service sector industries, ranging from restaurants and bars to trucking companies and hotels, are facing many of the same problems but have been aided by strong demand that has helped them surmount some of those issues.

"Even with the supply chain disruptions and labor shortages the pent-up demand has kept things going gang-busters," said Anthony Nieves, chair of the ISM services survey committee.

But he cautioned that the labor and supply-chain problems and rising inflation will likely continue to present challenges for the rest of this year.

The 64.1 reading for the services index was much better than the 60.5 many economists had been expecting.

But Andrew Hunter, senior U.S. economist at Capital Economics, said details of the report showed that "supply shortages are still worsening and could push price inflation even higher."

Among the ISM survey respondents, one person in the construction industry said, "Costs have risen dramatically in the last 45 days. Lodging, fuel, travel and supplies are all rising sharply."

The July gain was led by a big increase in the index for business activity and in employment, which returned to growth after having been in contraction territory in June.

All 17 of the services industries included in the survey reported growth, with the strongest gains coming in arts, entertainment and recreation, wholesale trade and accommodations and food services, one of the categories hardest-hit in the pandemic.