WASHINGTON: Expansion in the US services sector, a key driver of the world's largest economy, gathered pace in May on strong demand, reversing three months of declines, according to an industry survey released Tuesday.
However the services industries reported a sharp jump in order backlogs due to shortages of labor and transportation, according to the Institute for Supply Management.
Mounting metal prices and worries about trade tariffs also are causing concerns and supply interruptions, ISM said.
The institute said its non-manufacturing index showed the sector expanded for the 100th month in a row, rising to 58.6 percent, 1.8 percent higher April and overshooting analyst expectations.
The increase reversed the slower growth rates seen in the prior three months. Any score above 50 percent marks expansion.
Business activity rose 2.2 points to 61.3 percent while new orders edged a half point higher to 60.5 percent, and the employment index also rose a half point to 54.1 percent, consistent with May's robust job growth.
ISM said 14 of 15 industries surveyed reported expansion with the information industry the lone sector that slowed.
But survey respondents also reported an 8.5 point jump in order backlogs to 60.5 percent, according to ISM.
Anthony Nieves, chair of ISM's survey committee for the services sector, said businesses did not have the capacity to meet demand.
And this was due in large part to the lack of truck drivers.
"This non-manufacturing sector is very reliant on overland trucking due to warehousing and transportation and distribution," he told reporters.
"Distributors play a key role in moving product throughout the disparate locations. So that poses a constraint on the supply chain."
Fuel and fuel-related transportation costs, as well as rising prices for steel and aluminum in anticipation of US import tariffs, which took effect this month, also were driving up prices.
The prices index rose another 2.5 points to 64.3 percent, the 27th consecutive monthly gain.
Construction also is seeing supply concerns, and one survey respondent said firms were "struggling" to hold quotes on lumber prices.
"The instability has proven frustrating but a larger problem is that we are starting to see longer lead times in many of the same areas that could start impacting timelines if they continue to get worse as we get into the main building season," the survey respondent said.
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