WASHINGTON, July 6 (Reuters) – In the United States, activity in the service sector grew at a moderate pace in June, possibly held back by labor and raw material shortages, resulting in that unfinished business continues to pile up.

The Institute for Supply Management said on Tuesday that its non-manufacturing activity index fell to 60.1 last month from 64.0 in May, which was the highest reading in the series’ history.

A reading above 50 indicates growth in the service sector, which accounts for more than two-thirds of US economic activity. Economists polled by Reuters had expected the index to drop to 63.5.

The economy was hit by labor and raw material shortages when it reopened after more than a year of disruption caused by the COVID-19 pandemic. More than 150 million people are fully immune to the coronavirus, which has resulted in the lifting of pandemic-related restrictions on businesses and mask mandates, helping demand to return to services from goods.

The survey’s order book measure rose to 65.8 from 61.1 in May. New orders have remained healthy and there are plenty of opportunities for sizable gains in the coming months, with inventories contracting in June. The sense of inventory among customers remained low. Business inventories ran out in the first quarter due to pent-up demand.

With supply constraints showing no signs of easing, companies continued to pay more for inputs. The survey’s measure of prices paid by service industries fell to a still high level of 79.5 from 80.6 in May, which was the highest reading since September 2005. The continued rise supports l opinion of some economists that higher inflation will prove to be more persistent than currently expected. by the Federal Reserve.

Fed Chairman Jerome Powell has repeatedly said higher inflation will be transient, noting that he expects supply chains to normalize and adapt, views also divided by Treasury Secretary Janet Yellen.

The Fed’s preferred measure of inflation for its 2% target, the personal consumption expenditure price index, excluding volatile food and energy components, jumped 3.4% year-on-year in May, the largest increase since April 1992. read more

The measure of employment in the services of the ISM survey fell to 49.3 in June against 55.3 in May. There is, however, cautious optimism that the labor shortage is starting to ease.

The government announced Friday that the non-farm payroll increased by 850,000 jobs in June, the largest increase in 10 months, after increasing by 583,000 in May. Read more

Reporting by Lucia Mutikani Editing by Chizu Nomiyama

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