US ISM Service: Scarcity is weighing on production – Wells Fargo

Data released on Thursday showed the ISM Service Index dropped to the lowest level in 11 months in January. Analysts at Wells Fargo point out it reflects how a lack of available workers and persistent supply shortages “are weighing on firms' ability to keep up with activity in the service sector despite what is still a strong, if somewhat moderating, demand environment.”

Key Quotes: 

“The ISM for the service sector fell 2.4 points to 59.9 in January. The decline was not quite as bad as feared by the consensus and is still at a level of expansion that is consistent with a steady pace of growth for the service sector. That said, throughout the comments and within the various subcomponents, there was a theme that just about everything is still in short supply and that is slowing production despite a robust demand environment.”

“Every supply-related indicator in the release suggests the same thing: supply chains are still a problem. Supplier deliveries rose 1.8 points to 65.7 last month, an indication that service-providers are still far from seeing a transition to smooth sourcing of products.”

“It is a mixed bag for hiring with five industries able to find people and add to payrolls and eight industries reporting outright reduction in employment in January. Overall the risk is to the downside for the labor market in January; the employment component fell 2.4 points to 52.3 and while that is still consistent with expansion, we still expect tomorrow's employment report to show a decline of 100K jobs in January.”