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The highly infectious Delta variant of Covid-19 has the potential to cause consumers to pull back spending on services, according to businesses surveyed by the ISM, but firms see partial shutdowns at worst and pent-up demand continuing to propel service sector activity, survey chair Anthony Nieves told MNI Wednesday.

High demand for in-person services is driving business activity, spending and prices, and businesses have yet to feel any slowdown as infections rise, Nieves said.

"With all the pent up demand that we've had, it just seems like the economy is really pushing forward hard," he said in an interview. The ISM Services PMI rose 6.6 points in July, hitting an all-time high of 64.1.

There's likely to be "some pullback" in activity as Delta spreads, he said, but businesses are confident that another nationwide lockdown isn't in the cards, even if new infections and hospitalizations increase in the coming months.

"I don't think people have the political stomach to do a big shutdown like we had previously," he said. "That's why you're seeing more of a push from politicians on vaccinations" and renewed mask mandates.

LABOR SHORTAGE PERSISTS

Service providers through July still struggled to significantly increase staffing levels because of an ongoing shortage of available workers, Nieves said.

That's "most evident" in typically lower-paying industries like food service and accommodation, which is having a "terrible time finding people," he said. That's also hindering the service sectors' overall recovery as businesses like restaurants aren't staffed to operate at full capacity.

Some businesses have responded to the labor shortage by reducing their hours of operation, Nieves said, and restaurant managers in many places are "doing line worker tasks because they can't get enough employees."

Still, the employment sub-index rose 4.5 points in July to 53.8, an improvement over June when employment contracted for the first time since December. That could be tied to higher wages and better benefits offered by employers competing for workers, Nieves said, though staffing levels still aren't close to what they need to be.

HIGH PRICES HERE TO STAY

Service providers are confident that high price points will stick around for some time, Nieves said, believing that inflation will remain elevated into 2022 as supply struggles to keep up with demand.

"We see inflation coming into the picture more and more," he said, and despite pent up demand for services, "there's a real shortage. That's the reality of it."

Prices in July rose 2.8 points to 82.3, the second highest reading since 2005.