(Bloomberg) — A measure of activity at U.S. service providers and manufacturers in September grew at the slowest pace in a year, restrained by nagging supply-chain and labor challenges as well as the delta variant. 

The group released a report Thursday showing that the flash composite IHS Markit index of purchasing managers at service provider and manufacturer companies fell to 54.5, from 55.4 one month prior. A reading above 50 indicates growth, and it has been declining each month since May’s record high of 68.7.

“The slowdown was led by a cooling of demand in the service sector, linked in part to the delta variant spread,” Chris Williamson, chief business economist at IHS Markit, said in a statement. “However, while manufacturers have seen far more resilient demand, factories face growing problems in sourcing enough supplies and labor to meet orders.” 

Results were similar in the euro area, where business activity at service providers and manufacturers slipped to a five-month low. IHS Markit reported that growth was particularly slow in France and Germany. 

The group’s gauge of activity at U.S. services slid to its lowest level since July of last year. The sector saw a decline in employment for the first-time since June 2020, due to persistent job losses and a lower demand. 

The PMI fell to a 5-month low at manufacturers. Despite remaining strong at 60.5, it fell due to the lowest output reading since October as well as slower orders growth. 

However, order backlogs in manufacturers rose to their highest level since 2007. Material shortages, shipping problems and difficulties retaining skilled workers continue to plague production lines. 

However, factories seem to be able to pass on the increased costs. This report shows that the IHS Markit measurement of factory output price rose to an all-time high. Manufacturing lead times continued to be the longest ever recorded. 

“The upshot is yet another month of sharply rising prices charged for goods and services as demand outpaces supply, and higher costs are passed on to customers,” Williamson said. 

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