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Service-sector growth skyrockets

Surveys taken before omicron reports emerged, says official by MARTIN CRUTSINGER THE ASSOCIATED PRESS | December 4, 2021 at 2:02 a.m.
Waiter Juan Rodrigues (left) checks vaccination cards before patrons enter the Fred 62 restaurant in Los Angeles on Monday. Activity at restaurants and other service industries rose to a record in November. (AP/Damian Dovarganes)

WASHINGTON -- Growth in the services sector, where most Americans work, hit an all-time high in November, overtaking a record that was set the previous month.

The Institute for Supply Management reported Friday that its monthly survey of service industries increased by 2.4 percentage points in November from the October record to a reading of 69.1 percent. Any reading above 50 indicates growth.

The service sector data is being released against the backdrop of an employment landscape in which hiring appeared to slow in November, but the unemployment rate tumbled from 4.6% to 4.2%. That is a historically low jobless rate though still above the pre-pandemic level of 3.5%.

Some of the strength in the services sector is coming from supply chain troubles that are making it harder to meet increased demand. Those troubles are showing up in the index as longer supplier delivery times and rising prices which register as strengths for the services sector.

The recent uptick in covid-19 cases and now the appearance of the new omicron variant could depress service sector activity in coming months.

"We suspect this survey is overstating the outlook for the services sector, particularly as rising coronavirus infection rates in the Northwest and Midwest will weigh on high-contact services activity over the winter," said Paul Ashworth, chief U.S. economist for Capital Economics.

The increase in November was led by a rise in the business activity index and a gain in the employment index. The new orders index remained at an elevated reading of 69.7.

All 18 service sector industries reported growth in November and since recording two months of contraction last year in April and May when the pandemic was raging, the overall index has now grown for 18 consecutive months.

Anthony Nieves, head of the the institute's services sector survey committee, said the responses for the November report were gathered before reports started coming out about the new omicron variant. He said while the new variant could affect service sector activity it will depend on how widespread the new variant is and how much it increases infections.

The responses from service sector businesses showed that the supply chain delays and difficulty finding workers were having a widespread impact.

One survey respondent in food services pointed to "labor shortages, transportation delays and supply constraints" as big issues.

Oren Klachen, lead U.S. economist at Oxford Economics, predicted that "substantial supply side restraints will continue to cap the expansion even if omicron doesn't prove to be a significant threat."

Inflation has surged to a three-decade high, largely because of the supply and labor squeeze, which exacerbates the supply problem.

In its Beige Book report this week the Federal Reserve said that companies were complaining about "persistent difficulty in hiring and retaining employees" with many leisure and hospitality firms still limiting operating hours due to a lack of workers.

The report said businesses had heard a variety of reasons for the labor shortages. Those included the lack of childcare, retirements and continued safety concerns revolving around the persistence of covid cases. The survey was also conducted before the emergence of the new omicron variant.

"Nearly all districts reported robust wage growth," the Fed said. "Hiring struggles and elevated turnover rates led businesses to raise wages and offer other incentives, such as bonuses and more flexible working arrangements."

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