By Xavier Fontdegloria
Business activity in the U.S. services sector accelerated its expansion pace in May as more firms moved to normal capacity amid increasing headwinds related to supply and labor shortages.
The ISM Services Report on Business PMI increased to 64.0 in May from 62.7 in April, data from a survey compiled by the Institute for Supply Management showed Thursday. The reading marks a new record high in the survey's history.
Economists polled by The Wall Street Journal expected the PMI to come in at 62.5.
"The rate of expansion [in the service sector] is very strong, as businesses have reopened and production capacity has increased," said Anthony Nieves, chair of the ISM Services Business Survey Committee.
The reopening of the economy amid increased vaccinations and households' desire to again participate in many previously constrained services bodes well for a rapid recovery for services activity, economists say. However, the sector faces increasing supply-chain problems and labor shortages that could constrain output.
In May, the ISM services business activity index rose to 66.2 from 62.7 in April, while the new orders index increased slightly to 63.9 from 63.2 the previous month.
The employment index fell to 55.3 from 58.8, signaling lower growth in employment. "Competition for labor continues to intensify due to lack of available talent pool," one of the respondents of the survey said.
Firms reported that supply bottlenecks continue to hit their businesses. The supplier deliveries index increased to 70.4 from 66.1 the previous month.
"Some capacity constraints, material shortages, weather-related delays, and challenges in logistics and employment resources continue," Mr. Nieves said.
The prices index continued its upward trend and climbed to 80.6 from 76.8 in April, indicating that prices increased in May at a faster rate.
"Business is doing good, exceeding sales target, but we have challenging issues with increases in raw-materials costs and freight rates, huge freight delays from overseas and continued U.S. port delays," one respondent from the wholesale trade industry said.
The ISM services PMI also signaled that the U.S. overall economic activity continued to grow in May as a reading above 48.5 over time generally indicates an expansion of the overall economy.
Write to Xavier Fontdegloria at email@example.com
(END) Dow Jones Newswires
June 03, 2021 10:39 ET (14:39 GMT)Copyright (c) 2021 Dow Jones & Company, Inc.