Workers Are Scarce And Import Price High
The Institute for Supply Management said on Tuesday that its non-manufacturing activity index has fallen to 60.1 while it stood at 64.0 in May. A reading above 50 indicates growth in the services sector, which accounts for two-thirds of U.S. economic activity.
"With supply constraints showing no sign of letting up, businesses continued to pay more for inputs."
"The continued elevation supports some economists’ view that higher inflation to prove to be more persistent than currently envisioned by the Federal Reserve." by Lucia Mutikani for Reuters
The economy has been hit by labor and raw materials shortages as it re-opens after a year of disruptions caused by the COVID-19 pandemic. Many businesses have been caught off guard as input prices have risen and workers are scarce.
"Struggles among companies to find suitable workers hampered employment growth in June, [...] Although strong, the rate of job creation was the slowest for three months. Pressure on capacity was reflected in a solid rise in backlogs of work." IHS Markit by Emily McCormick for Yahoo!Finance
Fed Chair Jerome Powell has stated repeatedly that higher inflation will be transitory, noting that supply chains will need to normalize and adapt. On Friday, the government reported that non-farm payrolls increased in June by 850,000 jobs, the largest gain in 10 months.
- Fear for the virus, generous support programs and pandemic-motivated changes have deeply impacted the labour market and slow down the recovery
- Global supply chains have also been disrupted and drive up import prices which are then (sometimes) passed on to consumers
- In the longer run, we expect supply chain issues to get cleared. However, the labour market might take longer to normalise as both workers and employers get used to the new conditions
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