The survey by the Supply Management Institute (ISM) was released on Monday and came in the wake of Friday’s payroll, which showed a net opening of 916,000 jobs in the US last month, the strongest number in seven months. Economic growth this year is expected to be the most expressive in almost four decades.
“The vigorous service activity in March sets the stage for robust expansion in the second quarter,” said Oren Klachkin, chief economist at Oxford Economics in New York.
“All the right parts for faster service recovery – expanded vaccine eligibility, reopenings and historic fiscal expansion – are being put in place.”
The service sector activity index released by ISM recovered to a reading of 63.7 last month, also due to warmer weather. The number is the highest in the history of the survey and comes after a 55.3 mark in February.
Readings above 50 indicate growth in the service sector, which accounts for more than two-thirds of US economic activity. Economists polled by Reuters had predicted that the index would rise to 59.0 in March.
The ISM reported that comments from service industry executives indicated that “the end of restrictions related to the Covid-19 pandemic has released pent-up demand for many.”
However, the institute noted that “restrictions on production capacity, material shortages, climate and challenges in logistics and human resources continue to cause disruption to the supply chain”.
The survey adds to a series of reports ranging from industry to consumer confidence, through employment, suggesting that the vastly improved public health situation and the $ 1.9 trillion bailout package proposed by the White House are providing a powerful wind in favor of the economy.
ISM had already announced last week that its measure of national manufacturing activity in March had reached the highest level in more than 37 years. The service industry, hardest hit by the pandemic, may accelerate further with the reopening of the economy.
MORE COST PRESSURES
The ISM survey measure for new orders to the service industry recovered to an all-time high of 67.2 in March, from a nine-month low of 51.9 in February.
Supply restrictions are increasing costs for companies. The measure of prices paid by the service industries consulted in the survey jumped to 74 last month, the highest since July 2008, compared to 71.8 in February.
The increase in these price measures has reinforced concerns about higher inflation this year. But some economists say they are not reliable indicators of future inflation. Price pressures are driven by generous fiscal stimulus and extremely accommodative monetary policy.
A separate report from the Department of Commerce showed on Monday that new orders for products made in the U.S. fell in February, probably due to the colder than usual weather for the time. Factory orders fell 0.8%, after increasing 2.7% in January.
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