A measure of U.S. service sector activity surged to a record high in July while an index that reflects prices paid by service industry businesses accelerated sharply, marking another milestone on the path to economic recovery while reinforcing concerns about inflation.
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.
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. He 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 at Creighton University’s Heider College of Business, in an emailed statement to The Epoch Times.
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.
