Economic Blog Posted by lplresearch
Thursday, July 8, 2021
The June Institute for Supply Management (ISM) Services Index was a bit softer than expected (60.1 vs. the Bloomberg consensus estimate of 63.5), although the overall reading remained near multi-year highs. The June figure also came in lower than May’s reading of 64.0. Survey respondents were bullish on many components of the overall index, including remaining order backlogs that needed to be filled and pricing power. However, supply managers did point to the proper availability of labor as a chief concern. The labor component was down sharply from previous months. In sum, the overall index points to an economy firmly on the mend, but one that is suffering from some of the imbalances often associated with a shock to the economy’s supply/demand equilibrium.
“The U.S. economy’s services sector continues on its robust recovery trajectory, although the June figures were not quite as good as expected. Interestingly, services supply managers, like their manufacturing counterparts, have begun to highlight the difficulty in rebuilding their post-crisis workforces; a situation that may take a while to resolve,” explained LPL Director of Research Marc Zabicki.
As we look at various elements of this survey, it appears extended unemployment benefits may be contributing to some of the labor supply constraints pinpointed by supply managers. This may be most acutely felt in the services sector, where many businesses shut down, furloughed employees, and now must re-hire again.
Meanwhile, we are particularly interested in the prices component of this survey. If we look at the history of the ISM Services survey over the last 15 years, the much-talked-about rise in prices is not much different from what was witnessed as we exited the Financial Crisis (2009-2010). The prices component is clearly higher today, although prices did spike to a high level in 2010 before settling back down as supply/demand elements of the economy found an equilibrium. We would anticipate the same to occur this time around as post-COVID supply challenges correct.
Overall, this report does not change the broad picture of a robust economic recovery, but service sector business are still facing some meaningful but likely temporary challenges to ramping back up.
IMPORTANT DISCLOSURES
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
All index data from Bloomberg.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
- Not Insured by FDIC/NCUA or Any Other Government Agency
- Not Bank/Credit Union Guaranteed
- Not Bank/Credit Union Deposits or Obligations
- May Lose Value