Economic Report: The red-hot U.S. economy cools off a bit, ISM finds, because of major shortages

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The numbers: Restaurants, retailers and other businesses that compose the huge service side of the U.S. economy simply cannot find enough people to fill open jobs or obtain enough supplies to keep up with exploding sales.

A survey of service-oriented businesses fell to 60.1% in June from a record 64% in May, the Institute for Supply Management said Tuesday.

The problem is not a lack of demand. Customers have been clamoring for more and more goods and services for months as the coronavirus waned, the U.S. fully reopened and the government poured massive doses of stimulus into the economy.

What’s holding companies back is the inability to obtain enough supplies on time or to attract enough people to do the work. These shortages are boosting the cost of materials and labor and adding upward pressure on inflation.

Read: U.S. manufacturers have all they business they can handle, but major shortages are a big headache

Economists surveyed by Dow Jones and The Wall Street Journal had forecast the index would total 63.3%.

In normal times, any survey reading above 50% signals expansion and a reading above 60% would be exceptional. Except that these aren’t normal times.

Big picture: The economy is booming after more than a year of being depressed by a global pandemic. The problem is the rush of pentup demand has overwhelmed the ability of companies to keep up.

There are still lingering disruptions in the flow of goods and services within the U.S. and throughout the world economy. And millions of people still haven’t returned to work, making it all but impossible for companies to fill a record number of open jobs.

These problems are expected to persist through the end of the summer and contribute to the highest burst of inflation since 2008.

Market reaction: The Dow Jones Industrial Average
DJIA,
-1.16%

and the S&P 500
SPX,
-0.67%

fell in Tuesday trades.

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