By Lucia Mutikani

WASHINGTON, (Reuters) – U.S. business activity rose solidly in October. This suggests that economic growth was picking up after the end of the fourth quarter. However, manufacturing was hampered by labor and material shortages.

IHS Markit data company said that Friday’s flash U.S. Composite PMI Index Output Index (which tracks manufacturing and service sectors) saw a rebound to 57.3, from 55.0 in September. If the reading is above 50, it indicates that there has been growth in the private sector.

The Delta coronavirus variant triggered a resurgence of coronavirus infection, which impacted demand for consumer-facing services like hotels, restaurants and airlines. Economic activity was affected by the resurgence of coronavirus infections and shortages in nearly every industry.

The third quarter gross domestic product growth rates are estimated to be below 3% annually. In the second quarter, GDP grew 6.7%. Next Thursday, the government will publish its snapshot for third quarter GDP.

Services sector was responsible for the increase in business activity. According to IHS Markit, the flash services sector PMI rose from September’s 54.9 reading to 58.2. Reuters polled economists and predicted a reading 55.1 for this month’s services sector PMI. This sector accounts for over two-thirds U.S. economic activities.

Businesses in the services industry reported that the unfinished work pile up faster than ever since 12 years ago, when the data company began tracking it. Companies were still hiring. Businesses complained that they had difficulty hiring workers.

End August saw 10.4 Million job openings. At September’s end, 7.7million people were unemployed. This labor market gap can be attributed to recently terminated expanded unemployment benefits. Many people are now caring for others due to fears about contracting the coronavirus and dropping out of school. COVID-19 also has led to career shifts and early retirements.

Services businesses have reported higher input prices due to supply shortages. This supports the view that inflation is not as temporary as was argued by Jerome Powell, Federal Reserve Chair.

Manufacturing activity in this month was restricted by shortages of raw material. According to the survey, flash manufacturing PMI dropped from 60.7 in September to 59.2 over seven months. The sector accounts for 13% of the economy. Economists predicted that the index would fall to 60.

The pace of factory production increased at the slowest rate since July 2020. As their counterparts in the services sector, factories reported that they pay more for inputs and pass on those higher costs to customers, which may keep inflation high for some time.

The Fed’s preferred inflation indicator, the personal consume expenditures price index, which excludes volatile food- and energy-components, rose 3.6% annually in August. Flexible 2% targets are set by the U.S. central banks.

Procter & Gamble (NYSE:) Co announced on Tuesday that it would raise prices of some of its grooming, oral and skin care products in the United States to defray higher commodity and freight costs. Unilever (NYSE -) stated on Thursday that prices would need to go up further due to increasing costs including rising energy prices.