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EconoFACTS: U.S. ISM Non-Manufacturing Index (May 2020)


The run of more encouraging economic news continues ....sort of....

... even for the sector that was slammed the most from the coronavirus. The U.S. non-manufacturing ISM rose for the first time since February, up 3.6 pts to a 2-month high of 45.4 in May....still contracting (baby steps!!) but less so. Unlike its manufacturing cousin, this one actually beat expectations as it bounced off the lowest level in 11 years. (Interestingly, a number of other services PMIs elsewhere in the world also beat expectations, such as China, Japan, the U.K. and the Euro Area.) However, the report wasn't exactly a wall of positivity. Yes, new orders (+15 pts) and business activity (+9 pts) rebounded, which is good news for current and future activity. And suppliers had fewer issues getting their products out to customers... supplier deliveries, while still slow, were less delayed )-11.3 pts).

But even with this pickup in activity and orders, the employment component only rose 1.8 pts to 31.8.... interesting, particularly after the ADP's job loss of "only" 2,760,000 in May. None of the industries added to their payrolls, while 17 reported declines, with comments focussed on furloughs, terminations, hourly reductions and forced vacations.

Of the 18 industries in the survey, only 4 reported growth, which is up from 2 (two!) in April. That's it. As I attempt to drum home every month, it is probably more important to look at what the industries are saying, versus the actual components of the survey. And the comments displayed the difficulties businesses continue to face....

  • Current operations have been reduced to accommodate a slowed economy, but the business is taking time to review operation and implement more efficient processes. Purchasing has slowed for client facing goods/services but has increased for internal operating supplies/services.” (Accommodation & Food Services)

  • “Demand seems to have bottomed out, and we are seeing signs of increasing interest. Inventories of finished goods are extensive, so production will slowly rebound in the coming months.” (Agriculture, Forestry, Fishing & Hunting)

  • Sales have slowed, but backlog has remained [at] 2019 levels. Several key commodities have seen radical up-and-down swings in pricing, specifically lumber. Some suppliers recognize the downturn and are beginning to voluntarily offer pricing concessions.” (Construction)

  • “Students participating in online education classes have greatly reduced the need on campus. Coupled with the natural slow down we normally experience in the spring and summer terms with reduced student enrollment, and our workload has diminished substantially.” (Educational Services)

  • "Extremely busy with Small Business Administration Paycheck Protection Program work.” (Finance & Insurance)

  • Low volumes due to COVID-19. No elective surgeries.” (Health Care & Social Assistance)

  • “Company is preparing to reopen offices worldwide, as communities relax work-from-home lockdowns. No employees have been furloughed or RIF’d and CEO says company should be able to maintain full employment at least through 3rd quarter if health situation remains as is. By Q4, a re-evaluation of staffing levels would need to be done if no improvement to the economic situation.” (Information)

  • “COVID-19 is still impacting our revenue significantly and the prices we are paying for goods and services.” (Public Administration)

  • “COVID-19 has had the largest impact on our company; however, we successfully kept 90 percent of our retail locations open to the public while implementing intense cleaning procedures and safety protocols. Our entire 300+ headquarters has been set up to work remotely to support our retail locations.” (Retail Trade)

  • “Business is slightly picking up but is still drastically down due to COVID-19 and hospitality businesses being closed or limited in service.” (Wholesale Trade)

The Bottom Line: Economic activity is recovering, slowly. But with new sanitation and distancing rules in place, it will be a tough slog. An additional hurdle will be the closures of some retail businesses to protect themselves from the rioting/looting in some cities, after reopening from the lockdown. Keep an eye on jobs... that is the all-important key to the recovery.

Source: BMO Economics, Haver Analytics

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Jennifer Lee Director and Senior Economist

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