MNI INTERVIEW:'Jailbreak' Spending Lifts US Service Prices-ISM

U.S. service activity and price gains will remain around record highs in coming months with households eager to spend while firms experience shortages of products and workers, ISM survey chair Anthony Nieves told MNI Thursday.

"The pent up demand is real," he said, with consumers in a "jailbreak" mentality after more than a year of on-and-off Covid lockdowns and limitations on in-person activities.

Businesses struggling to keep up are also driving prices higher, with the ISM prices index up 3.8 points to 80.6, overtaking April's 76.8 reading that was the highest since 2008.

ISM survey respondents saw price increases in May "on a daily basis," Nieves said, driven by an insufficient supply of materials and labor. Many also indicated fuel surcharges are lifting prices.

"It's going to take a while to stabilize pricing, simply because the supply has to catch up to demand, and we still have labor issues," he said. "Right now, we have inflation, and it's not going to go away in the next month or two."

PAYING CANDIDATES TO INTERVIEW

The service sector shouldn't see any leveling off on prices for at least another six months, he said.

Service-sector employment gains through May were subdued, Nieves said, with the ISM employment index down 3.5 points to 55.3 following an increase to 58.8 in April.

That was driven in part by a shortage of available workers, which survey respondents blamed on stimulus checks and enhanced unemployment benefits, he said. Others have noted that childcare issues and lingering virus fears are also keeping workers at home.

Employers are raising hourly pay and benefits and one survey respondent offered USD50 to candidates willing to interview for a job.

SERVICES WORKERS MOVING ON

Many displaced workers likely found jobs in other, less risky areas that don't rely on direct contact with consumers, Nieves said, and aren't expected to return. "There's available work in other industries that are less stressful and higher paying, and they'll gravitate towards that," he said.

The overall ISM Services PMI rose to a record high of 64 in May and Nieves said that pace should continue into Q3 as vaccines are widely distributed and business limitations ease. Even when the sector's output does start slowing, that won't necessarily be a bad sign as long as the index remains above 50, he said.

"We'll continue to see strong growth for at least another quarter before we start tapering off a bit," he said.