So much for slowing down the services, maybe.
The Institute for Supply Management announced Tuesday that its US service sector activity index rose from 61.7 in August to 61.9 in September. Anything over 50 stands for expansion. The number in September would have been higher had it not been for a slowdown in employment growth – a reflection of how difficult it is for many companies to find workers rather than a shift in labor demand.
Economists had expected the services index to continue the decline that began in August as the economic impact of the delta variant worsened. Some other indicators had suggested it, and in fact, IHS Markit reported Tuesday that its separate services index fell from 55.1 in August to 54.9 in September.
Even that IHS Markit number was considered good news as an earlier “Flash” estimate was lower. The implication is that the survey responses that came in later in the month were more optimistic. In other words, it got better.
When you consider what was going on with the pandemic, that might not be entirely surprising: In the first week of September, Covid-19 cases in the United States were close to their summer high of control and prevention, with an average of 145,840 new cases every day, according to the Centers for Disease . In the last week of the month that number dropped to 105,354. Still, the speed at which service sector growth appears to have picked up is encouraging. It wasn’t until later in the month that the drop in Covid-19 cases wasn’t just a head fake. Additionally, one might think that many activities that normally require a bit of planning, such as business travel, would have taken a while to respond to better news about the pandemic.
If Covid-19 cases can drop further this time around, the service sector should grow solidly and indeed help the economy recover completely. It is still a long way from that far: even if the gross domestic product exceeded the pre-pandemic level in the second quarter, consumer spending on services remained well below this mark.
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How the service sector develops in the coming months, however, may depend as much on how we have changed the way we work and on how the fight against the pandemic goes. For example, even if the number of cases drops dramatically, many people could walk slowly into offices every day, which will continue to weigh on the number of service companies in the city center. Having learned to meet remotely, many of the business trips that took place before the pandemic now seem nonsensical. There could also be a new seasonality that will persist for many service businesses like restaurants, with more activity in warmer months versus colder months than before.
The service sector can keep coming back, but it still won’t be the same.
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The delta variant of Covid-19 is spreading worldwide, threatening unvaccinated populations and economic recovery. WSJ breaks down events in key countries to explain why Delta is expanding faster than previously discovered tribes. Composition: Sharon Shi
Write to Justin Lahart at [email protected]
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