The huge service side of the U.S. economy grew more slowly in February, but not because of a lack of demand: Companies ran into increasing shortages or delays in obtaining key supplies that hampered their ability to run their businesses at full tilt.
A survey of top business leaders at service-oriented firms such as banks, retailers and restaurants slipped to a nine-month low of 55.3% from a two-year high of 58.7% in January, the Institute for Supply Management said Wednesday.
Readings above 50% signals that businesses are expanding, and numbers above 55% are usually a sign of broad strength.
The good news is, companies anticipate stronger sales in 2021 on the expectation that vaccines for the coronavirus will allow the economy to return closer to normal.
Yet lingering disruptions in business operations in the U.S. and abroad caused by the pandemic have thrown a monkey in the wrench. Many companies say they are facing sharply higher prices for now-scarce materials that are limiting production or forcing them to find less costly alternatives.
Big picture: The economy is picking up speed again as coronavirus cases decline, states lift business restrictions and the federal government pumps more stimulus into the economy.
The biggest problem for companies is getting badly needed supplies at reasonable prices in light of widespread shortages of key materials. These shortages are expected to recede as the U.S. and economies around the world get back to normal, but it could lead to a temporary bout of higher inflation and delay a full recovery.