By Xavier Fontdegloria

U.S. business activity accelerated in October despite severe shortages of staff and materials as the services sector revived from the Covid-19 Delta wave, according to a survey of purchasing managers.

The flash reading for the U.S. Composite Output Index rose to 57.3 in October from 55.0 in September, data from IHS Markit released Friday showed. A reading above 50 indicates growth, while a level below 50 signals contraction.

The reading, which is the highest in three months, suggests a sharp upturn in activity but still weaker than earlier in the year. The index is based on data from the firm's PMI surveys for manufacturing and service sectors.

"October saw resurgent service sector activity as Covid-19 case numbers continued to fall, marking a encouragingly strong start to the fourth quarter for the economy," said Chris Williamson, chief business economist at IHS Markit.

IHS Markit's flash U.S. Services Business Activity Index rose to 58.2 in October from 54.9 in September, reaching a three-month high and topping the 55.5 level expected by economists polled by The Wall Street Journal.

Service providers reported a quick rise in inflows of new work which was attributed to stronger demand conditions as Covid-19 related concerns eased.

However, respondents also said they were struggling to cope with growing sales due to labor shortages and supplier delays.

Service providers continued to increase their average prices in October, and said higher transportation costs, wages, supplier fees and material prices were the main drivers of inflation.

The acceleration in services activity didn't replicate to the manufacturing sector, which saw a slight slowdown in activity amid severe supply constraints, the data showed.

The IHS Markit Flash Manufacturing PMI declined to 59.2 in October from 60.7 in September, a seven-month low. Economists expected the indicator to be at 60.5.

The slower improvement in conditions was driven by a weaker expansion in output and a moderation in order book growth during October, the report said. Factory production remains plagued by constraints, including record supply chain bottlenecks and labor shortages, it said.

"While the economy looks set for stronger growth in the fourth quarter, the upward rise in inflationary pressures also shows no signs of abating," Mr. Williamson said.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

(END) Dow Jones Newswires

October 22, 2021 10:19 ET (14:19 GMT)