By Lucia Mutikani

WASHINGTON (Reuters) – U.S. service industry activity increased in September but is still being held back by a lack of inputs, high prices and the continued drag on from the pandemic.

On Tuesday, the Institute for Supply Management reported that its index for non-manufacturing activity rose to 61.9 from 61.7 in August. An increase in readings above 50 means that the service sector is growing, as it accounts for over two-thirds U.S. economy activity.

Reuters polled economists to forecast that the index will fall to 60. The Delta variant of COVID-19 has caused a resurgence which delayed the anticipated increase in travel services.

As the economy recovers from the severe disruption caused by the pandemic and vaccinations against coronavirus, spending is shifting steadily to goods instead of services. This survey measures the number of orders that services businesses received last month, up from 63.2 in August.

The services sector, like other parts of the economy is facing shortages in raw materials and labour. These headwinds are unlikely to ease anytime soon.

According to the ISM survey, supplier deliveries fell from August’s 69.6 reading to 68.8 in August. A reading above 50 indicates slower deliveries. Prices remained high due to tight supply. The price index for services increased to 77.5, from 75.4 in August.

These findings mirrored those of ISM’s Friday manufacturing survey and indicated that the high rate of inflation could continue through the end. Last month, the Federal Reserve raised its inflation projections to 3.7%. It was a significant increase on the June projection of 3.0%.

Personal consumption expenditures price index did not include volatile food or energy component. It rose 3.6% in August, well beyond the flexible target of 2% inflation set by the U.S. central banks.

Last month saw a steady increase in unfinished work within the services industry. While companies continued to hire workers in August, the pace has slowed slightly. This is likely due to difficulty finding workers.

Due to the pandemic some have been forced to leave work in order to be caregivers. This is causing an urgent shortage of labor. Some people are afraid to return from the pandemic, and others are looking for career opportunities or retirement.

At the end July, there were 10.9 million open jobs. According to the ISM Survey, the measure of employment in services declined from 53.7 August’s reading to 53.0.

Economists remain cautiously optimistic about the possibility that the labor shortage will ease in fall and winter after the September expiration of federal government-funded unemployment insurance benefits. Republicans and businesses blamed the workers shortage.