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Economic Report: The economy is on fire, ISM shows, but businesses grapple with labor and supply shortages


The numbers: The large service side of the U.S. economy expanded rapidly in May as Americans rushed to do all the things they couldn’t do during the pandemic, but widespread labor and supply shortages kept companies from growing even faster.

A survey of businesses such as retailers, restaurants and hotels climbed to 64% last month from 62.7% in April, the Institute for Supply Management said Thursday.

Although it’s the highest level on record, service-oriented companies still aren’t totally back to normal. The survey asks executives if business conditions are better or worse, but it doesn’t tell us how much so.

Economists surveyed by Dow Jones and The Wall Street Journal had forecast the index would total 62.5%. Any number above 50% signals expansion and readings above 60% are exceptional.

“The rate of expansion is very strong, as businesses have reopened and production capacity has increased” said Anthony Nieves, chairman of the survey.

Big picture: Americans are eager to go away for vacation, eat dinner out, visit a museum, take in a ball game or do many of the things that were largely off limits in the past year. And they have some extra cash courtesy of the federal government.

The result has been an explosion in sales — and a struggle by many companies to keep up. Labor is in short supply despite high unemployment for example, and prices for virtually everything are on the rise.

The price gauge rose again in May and touched the highest level in 13 years.

Read: ‘We are struggling to find employees to help us keep up,’ manufacturers say

Labor and material shortages are expected to ease in the months ahead, but it could be awhile before businesses fully regain their footing, prices ease and the economy is back to normal.

See: A visual look at how an unfair pandemic has reshaped work and home

Market reaction: The Dow Jones Industrial Average

and S&P 500

fell in Thursday trades.

Economic Report: U.S. gains 978,000 private sector jobs in May, ADP says

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