The ISM Service Sector surged to the highest level in its 24-year history last month due to the combination of strong consumer demand and supply chain disruptions. Starting with the demand side of the equation, both the New Orders and Business Activity components reached all-time highs in a clear sign of ongoing economic strength. However, anomalies in the global supply chain also skewed this index higher. For example, the bottom chart below shows that the Supplier Deliveries component is at one of its highest-ever readings, meaning that deliveries are taking far longer than usual. Longer delivery times are typically treated as a sign of robust demand, but in this instance supply chain bottlenecks are causing an upward distortion to this measure. In summary, further strength in the leading economic data continues to support a benefit of doubt approach, yet dysfunction across supply chains and the persistence of inflationary pressures must be monitored closely.
