US Service Sector: Activity held back by supply shortages – Wells Fargo

Data released on Wednesday showed an unexpected decline in the ISM service sector activity index. According to analysts at Wells Fargo, the service-sector activity is slowing but no for the lack of demand. 

Key Quotes: 

“Service-sector activity is slowing but not for the lack of demand. Business could be booming if service providers could just get the materials and help they need.”

“The fact that the ISM services index slipped a point to 62.7 in April from 63.7 in the prior month would ordinarily be an indication that the service sector is moderating. That is, however, not a clean read of things. To the extent that activity is slowing (the activity sub-component dropped 6.7 points in April), it is not for want of demand for services but rather the fact that service companies are short-handed on supplies and the help they need to operate. Our take is that the demand factors that drive service-sector activity are actually heating up.”

“With spending soaring, employers continue to staff up to meet surging demand. The employment index rose to 58.8 in April. However, that gain was a little more tepid than our expectations, and along with the ISM manufacturing employment series falling back 4.5 points to 55.1, we have downwardly revised our call for nonfarm payrolls on Friday to a gain of 1.1 million from an initial estimate of 1.2 million. The biggest downside risk to that call is the difficulty employers are having finding workers.”