A measure of U.S. service sector activity surged to a record high in July while an index reflecting prices paid by service industry businesses accelerated sharply, marking another milestone on the path to economic recovery but reinforcing concerns about inflation.

The Institute for Supply Management (ISM) said on Wednesday its non-manufacturing activity index climbed from 60.1 in June to 64.1 last month—the highest reading in the history of the series.

Readings above 50 on any of the ISM’s business activity gauges represent growth in a given area, with the results based on data compiled from a survey of service sector executives.

“Business continues to gain speed as the economy recovers and assuming there won’t be additional government-mandated lockdowns,” an executive from the Real Estate, Rental & Leasing sector told ISM.

While concern about the spread of the Delta variant of the CCP (Chinese Communist Party) virus has prompted a reversal of federal masking guidelines and driven renewed restrictions across the country, White House advisor Dr. Anthony Fauci said Sunday that enough people have been vaccinated against COVID-19 to avoid another round of lockdowns.

Still, even if states don’t resort to lockdowns, the spread of the Delta variant could still threaten the economy, according to Minneapolis Federal Reserve Bank President Neel Kashkari, who told CBS’ “Face the Nation” that the Delta variant was “creating a bunch of caution” among millions of out-of-work Americans and could slow the labor market recovery.

The ISM’s prices index—a measure of prices paid by services industries that could later be passed on to consumers—surged to 82.3 in July from 79.5 in June, the highest reading in nearly 16 years.

“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 executive told ISM.

Julio Gonzalez, CEO of Engineered Tax Services, told The Epoch Times in an emailed statement that while demand is back in the service industry, the supply side in terms of labor is lagging, contributing to what he called “massive inflation.”

Gonzalez added that the labor crunch was being exacerbated by the extended federal unemployment benefits, while arguing that President Joe Biden’s executive orders targeting the fossil fuel industry could send oil prices higher, “which impacts all costs.”

While officials at the Federal Reserve have taken the view that inflationary pressures will abate once the pandemic-related disruptions taper, some economists and financial sector experts have been raising the alarm on the pace of rising prices.

“You can’t speak to anyone in the investment field without having the fear of inflation come to the forefront,” said Robert R. Johnson, Professor of Finance, Heider College of Business, Creighton University, in an emailed statement to The Epoch Times.

A key inflation gauge, the so-called core personal consumption expenditures (PCE) price index, which excludes food and energy and is the Fed’s preferred method for measuring inflation, rose 3.5 percent in the 12 months to June, the Commerce Department said on July 30. The last time the core PCE inflation gauge saw a similar year-over-year vault was in July 1991.

Some economists worry that if prices rise too fast and stay high for too long, expectations of further price increases will take hold, driving up demand for wages and potentially triggering the kind of wage-price spiral that plagued the economy in the 1970s.

Tom Ozimek
Tom has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he’s ever heard is from Roy Peter Clark: ‘hit your target’ and ‘leave the best for last.’

August 4, 2021 6:36 pm

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