Higher Supply Chain Costs Weigh On US Service Sector

In the service sector in the U.S., things were looking up in February.

The latest report of the Services Institute for Supply Management (ISM) Report on Business said the service sector has hit its ninth straight month of growth, which has expanded for every month but two of the past 133 months.

There were 17 service industries reporting growth, with a composite index saying growth had continued every month except for a period in April and May last year, along with a stunted growth in February.

Respondents said they were mostly optimistic about a recovery for both businesses and the economy. But there were still some things holding it back, including production capacity, material shortages and challenges in logistics and human resources.

“The declining COVID-19 cases in the four states we operate in, combined with the increased vaccination rates, should bode well for our increased business activity moving into the second quarter of 2021,” a respondent from the Arts, Entertainment & Recreation industry stated, according to the report.

A respondent from the Healthcare & Social Assistance industry stated, “exponential demand for critical supplies due to [the] pandemic is driving distributer allocations and forcing alternative sourcing,” according to the report.

But a respondent from the Professional, Scientific & Technical Services industry stated recovery isn’t looking quite so rosy.

“We were excited [in January], when orders and activity were increasing,” the respondent stated, per the report. “Now, they are not receding, but they’re flat month over month. That’s not the rebound we were hoping for.”

There were 89,000 new jobs at small- to medium-sized businesses (SMBs) added in February this year, according to the February ADP National Employment Report.

There were 117,000 private sector jobs in that time, which was a drop from the 195,000 added in January.

The new jobs were largely in the service sector, with leads in trade, transportation and utilities. ADP Chief Economist Nela Richardson said the pandemic is still “in the driver’s seat,” but service providers would “likely benefit the most over time” as businesses opened back up and people started going out more.