Growth Softens at U.S. Service Firms on Capacity Constraints

(Bloomberg) -- A measure of activity at U.S. service providers settled back in July to a five-month low, reflecting businesses’ persistent struggle to fill positions and stock shelves.

The IHS Markit flash index of purchasing managers in the service sector slipped to 59.8 from 64.6 a month earlier, the group reported Friday. While the gauge has softened since soaring to a record in May, it remains historically elevated. Readings above 50 indicate growth.

A measure of services employment cooled to a four-month low, with companies indicating that the inability to lure workers was holding back activity. Combined with still-elevated measures of input costs and selling prices, the lack of available labor led to weaker business expectations.

At the same time, the IHS Markit U.S. manufacturing purchasing managers’ index advanced to a fresh record of 63.1 from 62.1 a month earlier. The group’s price measures also climbed to the highest readings in data back to 2007.

“While the second quarter may therefore represent a peaking in the pace of economic growth according to the PMI, the third quarter is still looking encouragingly strong,” Chris Williamson, chief business economist at IHS Markit, said in a statement.

“Short-term capacity issues remain a concern, constraining output in many manufacturing and service sector companies while simultaneously pushing prices higher as demand exceeds supply,” Williamson said.

Order backlogs at U.S. manufacturers were the second-highest on record, according to the group’s measure.

The composite index, measuring output at both manufacturers and service providers, slipped to a four-month low.

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