San Francisco Frontiers - US services sector growth ebbed in January amid Omicron

The survey by the Institute for Supply Management (ISM) rated overall activity in the massive services sector at 59.9 percent last month, down 2.4 percent from December, but solidly above the 50 reading that separates growth from contraction.

An overwhelming 15 of 18 sectors reported growth, including health care and social assistance and retail trade. Three sectors experienced contraction, including arts, entertainment and recreation.

"The rate of growth remains strong," said the survey's chair Anthony Nieves, but "respondents continue to be impacted by coronavirus pandemic-related supply chain issues, including capacity constraints, demand-pull inflation, logistical challenges and labor shortages."

The individual components of the survey pointed to lower business activity, new orders and employment compared with December.

But the data also showed higher inventories and a modest 1.6 percent drop in the inflation rate to 82.3 percent -- still a very high level of pricing pressure.

Overall, the report shows "underlying momentum," said Oren Klachkin of Oxford Economics, among the experts who see the Omicron effect diminishing relatively quickly.

"The virus' resurgence roiled services, but it won't derail the recovery," Klachkin said. "There is plenty of pent-up demand, especially for leisure and hospitality services, which will fuel a robust revival as the worst of Omicron passes."

The report quoted officials in several sectors complaining of difficulties finding supplies and labor, challenging their ability to meet strong demand for services.

"Costs have escalated to what we believe are unsustainable levels," said a survey respondent in the construction industry.

"Available labor is non-existant, so we have cut staffing and are taking on fewer projects temporarily in an attempt to reduce cost. Outsourcing where possible. We are not optimistic at this time."

F.Garcia--SFF