The large service sector of the U.S. economy sped up in October after hitting a bump caused by the coronavirus delta variant a month earlier and manufacturers also expanded activity rapidly, but ongoing labor shortages and supply bottlenecks acted as a drag on growth.
A survey of senior business executives in service-oriented companies, such as retailers and banks, rebounded to a three-month high of 58.2 from 54.9 in September, IHS Markit said Friday.
A similar survey of manufacturing activity slipped to 59.2 from 60.7, but it was still quite high. Any reading over 50 signals growth and numbers are above 55 are exceptional.
Businesses have plenty of demand, but they can’t find enough workers or supplies to produce more the goods and services. The result was a record rise in October in the backlog of unfilled orders and prices paid for parts and materials.
“Firms struggled to meet demand due to supply chain bottlenecks and labor shortages, in turn driving the steepest rise in prices yet recorded by the survey,” IHS said.
The situation has become so severe the Biden administration recently pressured the nation’s largest ports in Los Angeles to work 24 hours a day seven days a week to unload ships and speed up the movement of goods across the country.
Many stores warn they might not have certain goods in stock for the upcoming holiday shopping season unless the supply bottlenecks ease. Yet most experts say the problems are likely to persist well into 2022
“Goods producers continued to be severely hampered by material shortages and supply chain delays,” IHS said.
The shortages have sparked the biggest increase in consumer prices in 30 years, a situation that also won’t reverse very quickly.
“While the economy looks set for stronger growth in the fourth quarter, the upward rise in inflationary pressures also shows no signs of abating,” said Chris Williamson,
chief business economist at IHS Markit.