U.S. service providers expanded in July at the fastest pace on record as measures of business activity, new orders and employment all improved.
The Institute for Supply Management reported Wednesday that its monthly survey of service industries, where most Americans work, 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, the institute reported that growth in manufacturing had slowed for a second-straight month during 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, chairman of the institute's services survey committee.
But he cautioned that the labor and supply-chain problems and rising inflation likely will continue to present challenges for the rest of this year.
There are hints that hiring obstacles may be lessening some. The employment index rose to 53.8 -- indicating growth -- after contracting in the month before.
Order backlogs -- which rose to a record in June -- remain elevated and inventories contracted for a second-straight month, indicating demand continues to outstrip supply.
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 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 in arts, entertainment and recreation, wholesale trade and accommodations and food services, one of the categories hardest-hit in the pandemic.
At the same time, global demand is picking up. New export orders for U.S. service providers expanded at the fastest pace since 2007.
The survey figures were issued ahead of Friday's monthly employment report. Economists estimate 875,000 jobs were added in July, marking the biggest gain since last August.
A report earlier Wednesday from ADP Research Institute showed payrolls at companies rose 330,000 in July, the smallest advance in five months. Last month's increase followed a revised 680,000 gain in June.
The slowdown in hiring underscores the challenges of a full labor market recovery. Firms are trying to keep pace with an unleashing of pent-up demand, but it will take time to fill a now-record number of open positions.
The ADP data showed a broad moderation in employment growth. While the report and government data don't always move in lock-step, the smaller advance could temper expectations for an outsize gain in official payrolls figures Friday. The hiring deceleration was acute in leisure and hospitality, an industry that has the longest road to recovery.
Service-provider employment increased 318,000 in July. Payrolls at leisure and hospitality businesses rose 139,000 during the month, also the smallest advance since February.
Payrolls at goods producers rose by 12,000. Employment in construction increased by 1,000 in July.
"July payroll data reports a marked slowdown from the second quarter pace in jobs growth," Nela Richardson, ADP's chief economist, said in a statement. "Bottlenecks in hiring continue to hold back stronger gains, particularly in light of new covid-19 concerns tied to viral variants."
ADP's payroll data represent companies employing nearly 26 million workers in the U.S.
Information for this article was contributed by Martin Crutsinger of The Associated Press and by Reade Pickert of Bloomberg News (TNS).