July 2020 ISM and Markit Surveys

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The Institute for Supply Management‘s (ISM) monthly sentiment survey showed U.S. manufacturing expanding more quickly during July. The PMI registered 54.2%, up 1.6 percentage points (PP) from the June reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. All of the sub-indexes showed improvement: the drop in slow deliveries (-1.1PP) indicates firms are ramping up activity, and the declines in inventories (-3.5PP) and customer inventories (-3.0PP) suggest the potential for a future ramp-up of output.

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The services sector -- which accounts for 80% of the economy and 90% of employment – also expanded further -- albeit at a significantly slower rate (+1.0PP, to 58.1%). The most noteworthy changes in the services PMI (formerly known as NMI) sub-indexes included inventories (-8.7PP), and export orders (-9.6PP).

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Of the industries we track, only Paper Products did not expand. Comments from respondents included:

• Construction. “Sales have remained strong in homebuilding. We are experiencing longer lead times for lumber, interior trim components, appliances and light fixtures. Lumber prices are near all-time highs as lumber mills have yet to increase capacity as demand has increased.”
• Real Estate. “COVID-19 interruptions are changing the way business is done.”

 

Relevant commodities:

• Priced higher. Construction contractors and subcontractors; crude oil; fuel; lumber products; and OSB.
• Priced lower. None.
• Prices mixed. Diesel.
• In short supply. Labor (general, construction and sub-contractors.

 

Findings of IHS Markit‘s July surveys paralleled those of their ISM counterparts, although both Markit surveys either barely crossed the threshold into expansion (manufacturing) or stopped at the breakeven point (services).

Manufacturing. U.S. manufacturing operating conditions improve for the first time since February.

Key findings:

• Overall improvement driven by renewed upturns in output and new orders
• Quicker rise in input costs amid supplier shortages
• Business confidence picks up to five-month high

 

Services. Business activity stabilizes but demand conditions deteriorate.

Key findings:

• Reopening of firms leads to rise in Business Activity Index from June
• New orders continue to fall slightly amid subdued demand
• Input cost pressures intensify

 

Commentary by Chris Williamson, Markit’s chief business economist:

Manufacturing. “Although indicating the strongest expansion of the manufacturing sector since January, the IHS Markit PMI remains worryingly weak. Much of the recent improvement in output appears to be driven merely by factories restarting work rather than reflecting an upswing in demand. Growth of new orders remains lackluster and backlogs of work continue to fall, hinting strongly at the build-up of excess capacity. Many firms and their customers remain cautious in relation to spending in the face of re-imposed lockdowns in some states and worries about further disruptions from the pandemic.

“Encouragingly, business optimism about the year ahead has revived to levels last seen in February, but many see the next few months being a struggle amid the ongoing pandemic, with a more solid-looking recovery not starting in earnest towards the end of the year or even into 2021. Further infection waves could of course derail the recovery, and many firms also cited the presidential elections as a further potential for any recovery to be dampened by heightened political uncertainty.”

 

Services. “The service sector is showing welcome signs of stabilizing after the unprecedented downturn seen during the second quarter, but many companies continue to struggle with virus-related constraints, especially in states where social distancing restrictions have been tightened again.

“The United States was the only major economy to see COVID-19 containment measures tighten again in July, and this is reflected in the data, with new business inflows falling at an increased rate to hint at the possible start of a double dip in business activity.

“More encouragingly, businesses have on balance become more optimistic about recovery in the year ahead, and took on extra staff to ensure capacity is sufficient to meet future growth. However, whether this optimism can be sustained and result in faster growth will of course depend on infection rates falling.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

June 2020 ISM and Markit Surveys

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The Institute for Supply Management’s (ISM) monthly sentiment survey showed U.S. manufacturing moving back into expansion during June. The PMI registered 52.6%, up 9.5 percentage points (PP) from the May reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. All of the sub-indexes showed improvement: the drop in slow deliveries (-11.1PP) indicates firms are ramping up activity, and the tick downward in customer inventories (-1.6PP) is suggestive of a potential improvement in demand.

“June signifies manufacturing entering an expected expansion cycle after the disruption caused by the coronavirus (COVID-19) pandemic,” said Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee. “Comments from the panel were positive (1.3 positive comments for every one cautious comment), reversing the cautious trend which began in March. The manufacturing sector is reversing the heavy contraction of April, with the PMI increasing month-over-month at a rate not seen since August 1980, with several other indexes also posting gains not seen in modern times. 

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The non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment – also jumped back into expansion (by a record +11.7PP, to 57.1%). The most noteworthy changes in the NMI sub-indexes included business activity (+25.0PP), new orders (+19.7PP), and exports (+17.4PP). “Respondents remain concerned about the coronavirus and the more recent civil unrest,” said Anthony Nieves, chair of the Non-Manufacturing Business Survey Committee. “However, they are cautiously optimistic about business conditions and the economy as businesses are beginning to reopen.” 

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Of the industries we track, only Paper Products contracted. Comments from respondents included:

Wood Products. “The building industry continues to defy expectations, as we continue to rebound stronger from the previous month. Being an essential business across most states and a surge in DIY projects has fueled the industry forward. While the industry will follow the greater economy, we do believe it will be more resilient than most due to potential migration from larger cities and an undersupplied housing market.”

Construction. “Sales have picked up tremendously. Sporadic supply issues. Biggest concern for us is lumber shortages.”

Real Estate. “COVID-19 and the riots have disrupted the normal flow of business. There is no new normal yet.”

Relevant commodities:

Priced higher. Crude oil, lumber products and transportation.

Priced lower. Natural gas.

Prices mixed. Fuel (including diesel).

In short supply. Labor (general, construction and sub-contractors.

Findings of IHS Markit’s June surveys paralleled those of their ISM counterparts, although both Markit surveys remained in contraction.

Manufacturing. Record rise in manufacturing PMI amid looser COVID-19 restrictions.

Key findings:

* Contraction in output slows as new orders stabilize
* First increase in selling prices since February, albeit only fractional
* Job losses ease amid renewed optimism

Services. Business activity contraction slows in June as new business nears stabilization.

Key findings:

* Softest fall in output since February amid strengthening demand
* Renewed increases in cost burdens and selling prices
* Business confidence improves

Commentary by Chris Williamson, Markit’s chief business economist:

Manufacturing. “U.S. manufacturers have reported a marked turnaround in business conditions through the second quarter, with collapsing production and demand in April at the height of the COVID-19 lockdown turning rapidly to stabilization by June. The PMI posted a record 10PP rise in June amid unprecedented gains in the survey’s output, employment and order book gauges.

“The record rise in the New Orders Index, coupled with low inventory holdings, bodes well for a further improvement in production momentum in July. A record upturn in business sentiment about the year ahead likewise hints that business spending and employment will start to revive.

“However, while the PMI currently points to a strong V-shaped recovery, concerns have risen that momentum could be lost if rising numbers of virus infections lead to renewed restrictions and cause demand to weaken again.”

Services. “June saw a record surge in the PMI’s main gauge of business activity in the U.S. as increasing numbers of companies returned to work and expanded their operations amid the reopening of the economy. The survey points to a strong initial rebound from the low point seen at the height of the pandemic lockdown in April, with indicators of output, demand, exports and employment all showing steep gains. Financial services and technology companies are now reporting improved demand, as are many consumer-facing companies. Many, however, remain constrained by social distancing measures.

“With business confidence in the outlook picking up again in June, a return to growth for the economy in the 3Q looks likely, though this will very much depend on the extent to which demand continues to strengthen. There remains a strong possibility that growth could tail off after the initial rebound due to weak demand and persistent virus containment measures. The need to reintroduce lockdowns to fight off second waves of coronavirus infections will pose a particular threat to recovery momentum, and could drive a return of the recession.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

May 2020 ISM and Markit Surveys

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The Institute for Supply Management’s (ISM) monthly sentiment survey showed that U.S. manufacturing contracted somewhat more slowly in May. The PMI registered 43.1%, up 1.6 percentage points (PP) from the April reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. All of the sub-indexes showed improvement except for imports, which contracted further (-1.4PP).

“Three months into the manufacturing disruption caused by the coronavirus (COVID-19) pandemic, comments from the panel were cautious (two cautious comments for every one optimistic comment) regarding the near-term outlook,” said Timothy Fiore, Chair of ISM’s Manufacturing Business Survey Committee. “As was the case in April, the PMI® indicates a level of manufacturing-sector contraction not seen since April 2009; however, the trajectory improved.” 

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The non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment – also contracted more slowly (+3.6PP, to 45.4%). Here, too, imports exhibited the most notable downturn (-5.6PP). “The non-manufacturing composite index indicated contraction for a second consecutive time,” said Anthony Nieves, Chair of ISM’s Non-Manufacturing Business Survey Committee. “Respondents remain concerned about the ongoing impact of the coronavirus. Additionally, many of the respondents' respective companies are hoping and/or planning for a resumption of business.” 

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Of the industries we track, Real Estate and Construction contracted. "Sales have slowed, but backlog has remained [at] 2019 levels,” observed one Construction respondent. “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.”

Relevant commodities:

Priced higher. Crude oil, freight, lumber products and oriented strand board.

Priced lower. Fuel (diesel and gasoline) and natural gas.

Prices mixed. None.

In short supply. Paper products.

Findings of IHS Markit’s May surveys paralleled those of their ISM counterparts.

Manufacturing. Ongoing COVID-19 impact drags output down further in May.

Key findings:

* Production and new orders fall substantially due to weak client demand
* Employment drops markedly amid signs of excess capacity
* Steepest decline in output charges on record

Services. Business activity slumps further amid COVID-19 pandemic, but speed of downturn eases.

Key findings:

* Output and new business drops substantially as COVID-19 crisis continues
* Business confidence improves but remains negative
* Input costs and output charges fall further

Commentary by Chris Williamson, Markit’s chief business economist:

Manufacturing. “Manufacturing remained in a deep downturn in May, as measures taken to contain the spread of COVID-19 continued to cause production losses, disrupt supply chains and hit demand. Job losses meanwhile continued to run at one of the highest rates in over a decade, and pricing power has collapsed.

“With increasing numbers of companies restarting production, we should see some improvements in the output trend in coming months, and it was reassuring to see signs of the downturn already starting to ease in May, suggesting April was the eye of the storm as far as the production collapse is concerned.

“There remains a high risk that any recovery will be frustratingly slow as ongoing social distancing measures, high unemployment, job insecurity and damaged balance sheets constrain consumer and business spending. The recovery will of course also fade quickly if virus infections start to rise again. For now, however, we focus on the good news that we may be past the worst in terms of the economic decline.”

Services. “The PMI numbers indicate that the US economy remained in a steep downturn in May. Encouragingly, the rate of contraction has eased considerably since the height of the lockdown in April as some firms get back to work and economic activity starts to resume.

“While views about prospects for the year ahead remained negative on balance, the degree of pessimism has also moderated considerably since April, to hint that sentiment is improving as increasing numbers of companies see the worst of the lockdown being behind them.

“A substantial part of the service sector nevertheless continued to be devastated by social distancing measures, and looks set to remain so for some months to come, limiting scope for a V-shaped recovery. The ongoing steep fall in employment remains a particular concern, pointing to a weakened consumer sector but also underscoring heightened risk aversion as companies seek to cut costs in the face of collapsing sales and an uncertain outlook.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

April 2020 ISM and Markit Surveys

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The Institute for Supply Management’s (ISM) monthly sentiment survey showed that U.S. manufacturing contracted further in April. The PMI registered 41.5%, down 7.6 percentage points (PP) from the March reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. Except for another surge in slow deliveries (+11.0PP), all sub-indexes were negative (and generally more so than in March). Declines in new orders (-15.1PP), production (-20.2PP) and employment (-16.3PP) were particularly noteworthy.

"Comments from the [manufacturing] panel were strongly negative (three negative comments for every one positive comment) regarding the near-term outlook, with sentiment clearly impacted by the coronavirus (COVID-19) pandemic and continuing energy market recession,” said Timothy Fiore, Chair of ISM’s Manufacturing Business Survey Committee. “The PMI indicates a level of manufacturing-sector contraction not seen since April 2009, with a strongly negative trajectory.” 

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The non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- dropped into contraction (-10.7PP, to 41.8%). A further jump in slow deliveries (+16.2PP, to a record-high 78.3PP) limited the decrease in the composite NMI; drops in new orders (-20.0PP) and employment (-17.0PP) were also among the most noticeable changes. 

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Of the industries we track, only Paper Products expanded. Common themes among respondent comments included demand volatility from the coronavirus, supply chain disruptions, and oil. Most relevant were the following:

Paper Products. "Our packaging business is starting to see signs of a slowdown in May after two strong months into COVID-19."

Construction. "COVID-19 is altering the operation, supply chain and sales process of home-building. Stay-at-home orders have hampered business in residential construction. As ours has been deemed an essential industry, we continue to navigate changing guidelines and restrictions on a daily basis."

Relevant commodities:

Priced higher. Freight.

Priced lower. Crude oil, fuel (diesel and gasoline) and natural gas.

Prices mixed. None.

In short supply. Labor (construction and temporary), paper products and toilet paper.

Findings of IHS Markit’s April surveys paralleled those of their ISM counterparts.

Manufacturing. Sharpest contraction in output in series history due to COVID-19 impact.

Key findings:

* Survey record decline in production
* Output expectations turn negative for first time in the series history
* New orders, employment and inventories fall at steepest rates since the global financial crisis

Services. COVID-19 impact drives record decline in business activity.

Key findings:

* Unprecedented contractions in output, new business and employment
* Business expectations turn pessimistic
* Output charges fall at sharpest rate on record

Commentary by Chris Williamson, Markit’s chief business economist:

Manufacturing. "April saw the manufacturing sector struck hard by the COVID-19 pandemic, with output falling to an extent surpassing that seen even at the height of the global financial crisis. With orders collapsing at a rate not seen for over a decade, supply chains disrupted to a record degree and pessimism about the outlook hitting a new survey high, rising numbers of firms are culling payroll numbers.

“Consumer-facing businesses are being hit by slumping demand from households as April saw widespread lockdowns, but business spending on inputs and equipment has also tumbled as companies slash production and investment.

“Smaller firms are being hit the hardest, and also reporting the highest job losses, but large firms are also seeing the sharpest downturn on record.

“With infection curves showing signs of flattening, it is naturally hoped that the economic downturn will also bottom out. As restrictions are lifted, demand should gradually revive, but the trade-off between risking a second wave of infections and bringing the economy back to life looks set to be one of the greatest challenges faced by policy- and lawmakers in recent history. The process will inevitably be led by caution, meaning recovery will also be frustratingly slow.”

Services. “The slump in the business survey indicators to all-time lows in April indicates how the 4.8% rate of economic decline seen in the first quarter will likely be dwarfed by what’s to come in the second quarter. Measures to fight the COVID-19 outbreak mean vast swathes of the service sector have been especially hard hit by travel restrictions and social distancing, with temporary company closures and dramatically reduced demand resulting in an overall drop in activity of even greater magnitude than seen during the height of global financial crisis.

“With hope, infections rates have peaked and the economic downturn should start to ease as virus-related restrictions are lifted. However, while manufacturing may see a rebound in production as increasing numbers of factories are allowed to reopen, prospects look bleaker for many parts of the services economy, especially where businesses rely on travel, social gatherings or close contact with customers. Businesses such as airlines, bars, restaurants, cinemas, sports arenas and other recreational activities will likely be at the back of the line in terms of being able to reopen to anything like previous capacity levels, meaning the recovery will be long and slow.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

March 2020 ISM and Markit Surveys

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The Institute for Supply Management’s (ISM) monthly sentiment survey showed that U.S. manufacturing contracted in March. The PMI registered 49.1%, down 1.0 percentage point (PP) from the February reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. Except for a surge in slow deliveries (+7.7PP), all sub-indexes were negative (and generally more so than in February). Declines in new orders (-7.7PP) and input prices (-8.5PP) were particularly noteworthy. 

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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- exhibited marked deceleration (-4.8PP, to 52.5%). Except for a jump in slow deliveries (+9.7PP), other sub-indexes were either less positive or outright negative. 

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Of the industries we track, however, only Ag & Forestry did not expand. Common themes among respondent comments included demand volatility from the coronavirus, supply chain disruptions, and oil. Most relevant were the following:

Construction -- “The coronavirus is having an impact, but not as much as we thought it would at this point. All sectors are staying busy. Although there are many customer concerns, we are finding work-arounds and adapting to the ever-changing situation.”

Real Estate -- “The coronavirus is affecting every aspect of business.”

Relevant commodities:

Priced higher – Labor, lumber, and oriented strand board.

Priced lower – Corrugate, crude oil, fuel (diesel and gasoline), and natural gas.

Prices mixed -- None.

In short supply -- Construction contractors and subcontractors, labor (temporary), paper products, paper towels, and toilet paper.

Findings of IHS Markit’s March surveys were reasonably consistent with their ISM counterparts.

Manufacturing -- Output declines at fastest pace since August 2009 amid COVID-19 outbreak.

Key findings:

* Production and new orders contract at fastest rates since financial crisis
* Employment falls at quickest pace for over a decade
* Business confidence drops to series low

Services -- Business activity declines steeply amid COVID-19 pandemic.

Key findings:

* Output and new business fall at fastest rates in series history
* Employment contracts at joint-sharpest pace since December 2009
* Business confidence drops to series low

Commentary by Chris Williamson, Markit’s chief business economist:

Manufacturing -- “The final PMI data for March are even worse than the initial flash estimate, with manufacturing output slumping to the greatest extent since the height of the global financial crisis in 2009.

"Growing numbers of company closures and lockdowns as the nation fights the COVID-19 outbreak mean business levels have collapsed. While some producers reported being busier as a result of stockpiling and anti-virus activities, notably in the food and healthcare sectors, these are very much the minority, and most sectors reported a rapid deterioration in demand and production.

"Orders for capital equipment have deteriorated at a rate not seen since data were first available in 2009 as firms stopped investing in machinery. Companies have meanwhile reined-in spending on inputs and households have pulled back sharply on many forms of spending, especially for non-essential and big ticket items. With export sales also sliding, factories are facing a broad-based slide in demand which is already resulting in the largest job losses recorded since the global financial crisis. Worse is likely to come as consumer spending falls further in coming months as lockdowns intensify and unemployment spikes higher."

Services -- “Business activity slumped to the greatest extent for more than a decade in March as efforts to contain the spread of the COVID-19 pandemic intensified. The survey indicates that the economy contracted an annualized rate approaching 5% in March, but with more measures to fight the virus outbreak being taken this decline will likely be eclipsed by what we see in the second quarter. More nonessential businesses are being forced to close, some are going bust, and lockdowns are leading to vastly reduced consumer spending,

“Employment and prices charged for goods and services are already being slashed at rates not seen since 2009 as companies seek to aggressively cut costs and discount charges in the face of collapsing revenues. Given that the survey does not include the self-employed, the jobless numbers are likely to rise at a much faster rate than even the slide in the PMI indicates. The policy response to the economic damage from the virus has already been unprecedented, but the collapse in business expectations for the year ahead tells us that companies are expecting far worse to come. IHS Markit is now forecasting an around 5.5% contraction of US GDP in 2020.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

February 2020 ISM and Markit Surveys

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The Institute for Supply Management’s (ISM) monthly sentiment survey showed that U.S. manufacturing barely expanded in February. The PMI registered 50.1%, down 0.8 percentage point (PP) from the January reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. Slumps in imports (-8.7PP) and input prices (-7.4PP), declines in production (-4.0PP) and new orders (-2.2PP), and a surge in slow deliveries (+4.4PP) suggest weakening demand. 

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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- accelerated (+1.8PP, to 57.3%). New orders (+6.9PP), exports (+5.5PP) and employment (+2.5PP) were the main drivers behind the increase. 

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Of the industries we track, only Ag & Forestry contracted. Respondent comments included the following:

Construction -- "[The] coronavirus has increased lead times for the critical items."

Real Estate -- "Construction activity appears to be getting off to a good start for 2020."

Relevant commodities:

Priced higher -- Construction contractors and labor (general and construction).

Priced lower – Gasoline, corrugate and natural gas.

Prices mixed -- Crude oil and diesel.

In short supply -- Construction contractors and subcontractors; and labor (general, construction and temporary).

As has become common in recent months, findings of IHS Markit’s February surveys were mixed relative to their ISM counterparts.

Manufacturing -- Manufacturing output growth weakens amid slower upturn in new orders.

Key findings:

* Operating conditions improve at softest pace for six months
* New order growth slows to nine-month low
* Business confidence strongest since April 2019

Services -- Fastest contraction in business activity since October 2013.

Key findings:

* Marginal fall in output as demand conditions weaken
* Slower rise in employment amid reduced pressure on capacity
* Business confidence strengthens, but remains relatively muted

Commentary by Chris Williamson, Markit’s chief business economist:

Manufacturing -- "Manufacturing production and order book trends deteriorated markedly in February as producers struggled against the double headwinds of falling export sales and supply chain delays, both in turn often linked to the coronavirus outbreak.

“Any growth in sales was once again largely driven by domestic consumers, though even here the rate of growth was weakened considerably compared to late last year.

“Historical comparisons against official data indicate that the survey is consistent with factory production and orders both falling at annualized rates of around 3%, with manufacturing jobs being lost at a monthly rate of roughly 20,000.

“While trade war fears have eased, helping push firms’ expectations for future growth to the highest since last April, coronavirus-related supply chain issues threaten to constrain production in coming months. At the same time, companies have become increasingly concerned that the COVID-19 outbreak will also hit demand, which is reportedly already cooling amid uncertainly leading up to the presidential election. Recent stock market volatility could also further dampen consumer spending and deter business investment.”

Services -- "The U.S. service sector took a knock from the coronavirus outbreak and growing uncertainty about the economic and political outlooks in February. The fall in the headline index measuring business activity levels was the second largest seen since the global financial crisis over a decade ago, exceeded only by the brief slump in activity during the 2013 government shutdown.

“Combined with a weak manufacturing survey in February, the data are consistent with annualized GDP growth slipping from around 2% at the start of the year to just 0.7% midway through the first quarter.

“Business sectors such as travel and tourism are reporting weakened activity due to the virus outbreak, most notably in terms of foreign visitors and overseas sales. However, other sectors such as financial services and business services are reporting virus-related hits to demand, suggesting a more broad-based weakening of demand across the economy, exacerbating the supply-shock that is constraining manufacturing.

“Companies have meanwhile grown increasingly concerned about client spending and investment being curbed ahead of the presidential election. Political and economic uncertainty, the coronavirus outbreak and financial market turmoil all risk building into a cocktail of risk aversion that has severely heightened downside risks to the economy in coming months. Much will depend of course on the speed with which the virus can be contained and how quickly business can return to normal.”

Commenting on the J.P.Morgan Global Composite PMI, Olya Borichevska, from Global Economic Research at J.P.Morgan, said:

“The outbreak of COVID-19 disrupted global economic activity in February, with output and new business falling [by] the greatest extents since mid-2009. However, a lot of this owes to China where the composite PMI fell 24PP as rates of decline in activity and new orders accelerated to survey records at manufacturers and service providers alike. The rest of the world fell a bit more than two points to near stagnation though we expect further declines as long as the disruptions continue. Business sentiment held up better, staying close to January's nine-month high.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

January 2020 ISM and Markit Surveys

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The Institute for Supply Management’s (ISM) monthly sentiment survey showed that U.S. manufacturing returned to expansion in January. The PMI registered 50.9%, up 3.1 percentage points (PP) from the revised December reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. Production (+9.5PP), exports (+6.0PP), new orders (+4.4PP) and imports (+2.5PP) all flipped into positive territory. 

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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- accelerated (+0.6PP, to 55.5%). Imports (+7.1PP), business activity (+3.9PP) and new orders (+0.9PP) drove the increase. 

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Of the industries we track, only Paper Products and Real Estate did not expand. Respondent comments included the following:

Construction -- "1Q sales are improving, which makes us more optimistic."

Real Estate -- "Customer inquiries are strong to start the new year."

Relevant commodities:

Priced higher -- Oil, propane, and labor (general and construction).

Priced lower -- Freight, natural gas, and fuel (including diesel)

Prices mixed -- None.

In short supply -- Construction contractors and subcontractors; and labor (general, construction and temporary).

As has become common in recent months, findings of IHS Markit’s January surveys were mixed relative to their ISM counterparts.

Manufacturing -- Manufacturing growth slows at start of 2020 as exports fall.

Key findings:

* PMI dips to three-month low as exports fall
* Employment rises at only a marginal rate
* Business confidence picks up to seven-month high

Services -- Business activity growth accelerates to 10-month high at start of 2020.

Key findings:

* Faster upturn in output amid sustained rise in new orders
* Rate of job creation quickest since last July
* Business confidence remains subdued

Commentary by Chris Williamson, Markit’s chief business economist:

Manufacturing -- "U.S. manufacturing limped into 2020, with falling exports dampening output growth and causing a pullback in hiring. The survey data are consistent with factory production falling moderately, meaning the manufacturing sector looks set to act as a drag on the overall economy once again in 1Q.

“Weakness looks broad-based. Rising demand from households has helped support production in recent months, but January saw a marked slowing in new orders for consumer goods. Production of capital goods such as business equipment, plant and machinery meanwhile fell for the first time in almost four years, hinting at weakened business investment.

“More encouragingly, business expectations for the year ahead perked up, coinciding with an easing of trade tensions and the signing of new North American and Chinese trade deals. Companies are therefore expecting the soft patch to be short-lived, though fears surrounding the Wuhan coronavirus and any further potential escalation of trade tensions could erode this optimism.”

Services -- "The PMI data indicate that the U.S. economy is ticking along at a steady but unspectacular annualized rate of growth of approximately 2% at the start of 2020. Growth has gained some momentum from the lows seen in the fall as the service sector enjoys stronger growth and manufacturing has also shown signs of the trade-led downturn easing. However, factory activity remains worryingly subdued, and optimism about future growth across the business community as a whole continues to run at one of the lowest levels seen over the past decade.

“Business are concerned by the prospect of weaker economic growth at home and abroad in the coming year, especially with spending potentially being dampened in an election year. Fresh worries are also likely to appear. With the vast majority of the survey data having been collected prior to the 24th January, we’ve yet to see any impact from the Wuhan coronavirus outbreak, but the potential disruption to business and the associated financial market jitters pose additional downside risks to both the global and US economies in coming months."

Commenting on the J.P.Morgan Global Composite PMI, Olya Borichevska, from Global Economic Research at J.P.Morgan, said:

“The global economy started 2020 on a stronger footing, with output growth rising for the third straight month to its highest since March [2019] suggesting global growth at an above-potential pace. However, we brace ourselves for a much weaker outcome this quarter as the outbreak of the nCoV virus disrupts activity in China and potentially around the world. Encouragingly, the gains in the PMI were not just confined to the Output Index, with trends in new orders, business sentiment and employment also firming.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

December 2019 ISM and Markit Surveys

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The Institute for Supply Management’s (ISM) monthly sentiment survey showed that in December, U.S. manufacturing contracted at a marginally faster pace. The PMI registered 47.2%, down 0.9 percentage point (PP) from the November reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. Production (-5.9PP) and customer inventories (-3.9PP) were noteworthy negative changes, while the Input Prices index (+5.0PP) pushed back into positive territory. 

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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- accelerated (+1.1PP, to 55.0%). Although the business activity index jumped (+5.6PP), the indexes for new orders (-2.2PP), order backlogs (-1.0PP) and exports (-1.0PP) all declined. 

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Of the industries we track, only Ag&Forestry did not contract. Respondent comments included the following:

Construction -- "Weather and the holiday season have had an impact on residential new construction sales and production. While demand is outstripping supply in the housing market, business is down due to global trade insecurity causing affordability, labor and cost pressures."

Relevant commodities:

Priced higher -- Fuel and oriented strand board.

Priced lower -- Corrugate, freight and natural gas.

Prices mixed -- None.

In short supply -- Construction contractors and subcontractors; and labor (general, construction and temporary).

As has become common in recent months, findings of IHS Markit’s November surveys were mixed relative to their ISM counterparts.

Manufacturing -- Manufacturing output continues to recover amid further new order growth

Key findings:

* Modest expansions in production and new business
* Inflationary pressures intensify
* Business confidence remains relatively subdued

Services -- Business activity growth accelerates to five-month high in December

Key findings:

* Output and new order expansions quicken, but remain only modest
* Fastest rise in employment since July
* Inflationary pressures pick up

Commentary by Chris Williamson, Markit’s chief business economist:

Manufacturing -- "The U.S. manufacturing sector continued to recover from the soft patch seen in the summer, ending 2019 with its best quarter since the early months of 2019.

"The overall rate of expansion nevertheless faltered somewhat in December and remains well below that seen this time last year, suggesting producers are starting 2020 on a softer footing than they had enjoyed heading into 2019.

"Business sentiment about the outlook remains especially subdued compared to a year ago, reflecting ongoing worries about geopolitics and trade wars, especially the impact of tariffs, as well as fears that political and economic uncertainty surrounding the 2020 elections could dampen demand.

"The impact of tariffs was clearly evident via higher prices, while the relatively subdued level of business confidence manifested itself in a pullback in hiring, hinting at risk aversion and cost-cutting."

Services -- "Business activity in the vast service sector picked up pace at the end of last year as rising domestic demand and signs of reviving exports led to higher workloads. Combined with indications of manufacturing lifting out of its recent lull, the survey data suggest the overall pace of economic growth accelerated to its fastest since last April.

"However, while moving in the right direction, service sector growth remains well below that seen in the early months of 2019, and the overall survey results are indicative of GDP rising at a relatively modest annual rate of 1.8% in December.

"The missing ingredient compared to this time last year is optimism about the future, with business sentiment regarding prospects for the next 12 months running well below levels seen this time last year, and close to the lowest for at least seven years. Indeed, much of the recent improvement in demand has come from stronger sales to consumers, with business spending and investment remaining under pressure amid this anxiety about the economic and political outlook."

Commenting on the J.P.Morgan Global Composite PMI, Olya Borichevska, from Global Economic Research at J.P.Morgan, said:

“The December global all-industry PMI came in positively at the end of the year reinforcing a view that activity will improve in the coming quarters. The all-industry activity PMI increased for the second month to an eight-month high. Improving trends in new order inflows, employment and business sentiment also suggest that further headway should be made at the start of the new year. International trade remains the main drag on efforts to lift growth further, so any moves that reduce tensions and barriers on this front will be especially beneficial.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

November 2019 ISM and Markit Surveys

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The Institute for Supply Management’s (ISM) monthly sentiment survey showed that in November, U.S. manufacturing contracted at a marginally faster pace. The PMI registered 48.1%, down 0.2 percentage point (PP) from the October reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. New orders (-1.9PP), employment (-1.1PP), order backlogs (-1.1PP) and exports (-2.5PP) all fell further into negative territory. 

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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- decelerated (-0.8PP, to 53.9%). Although growth in business activity slowed dramatically (-5.4PP), new orders (+1.5PP), employment (+1.8PP) and exports (+2.0PP) all rose. Meanwhile, imports (-3.5PP) contracted further. 

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Of the industries we track, only Paper Products and Real Estate expanded. Respondent comments included the following:

Wood Products -- "Markets have downshifted further. The continued confusion surrounding China trade has kept export markets on edge. Profits are elusive. Cash-flow planning is paramount. The general economy is slowing down."

Construction -- "Activity is still up in all areas, but primarily in commercial construction."

Relevant commodities:

Priced higher -- Lumber products.

Priced lower -- None.

Prices mixed -- None.

In short supply -- Construction contractors and subcontractors; and labor (construction and temporary).

As has become common in recent months, findings of IHS Markit’s November surveys were mixed relative to their ISM counterparts.

Manufacturing -- November PMI at seven-month high amid stronger upturn in new orders

Key findings:

* Output and new order growth rates improve to 10-month highs
* Fastest rise in employment since March...
* ...but business confidence remains subdued

Services -- Business activity growth strengthens in November

Key findings:

* Faster, albeit only marginal, rise in output
* Renewed increase in new business
* Optimism remains historically subdued

Commentary by Chris Williamson, Markit’s chief business economist:

Manufacturing -- "A third consecutive monthly rise in the PMI indicates that US manufacturing continues to pull out of its soft patch. New orders and production are rising at the fastest rates since January, encouraging increasing numbers of firms to take on more workers. Exports are also back on a rising trend, firms are buying more inputs and rebuilding inventories, adding to the signs of improvement.

"Some caution is needed, as these improved survey numbers merely translate into very subdued growth in comparable official gauges of manufacturing production and factory payrolls. Business sentiment also remains worryingly subdued, with expectations about future output growth well down on earlier in the year and running at one of the lowest levels seen since comparable data were first available in 2012.

"Firms remain very concerned about the disruptive effects of tariffs and trade wars in particular, both in terms of rising prices and weakened demand, though the survey also saw further worries among manufacturers that the economy could slow in the upcoming presidential election year as customers delay spending and investment decisions."

Services -- “With both services and manufacturing reporting stronger rates of expansion, the November PMI surveys indicate the fastest pace of economic growth for four months. The improvement is coming from a low base, however, and even at these higher levels the survey is merely indicative of annualized GDP growth in the region of 1.5%.

“Similarly, while reviving order book growth has encouraging more companies to take on extra staff after two months of net job losses being reported, the survey’s employment index continued to run at a level consistent with monthly jobs growth of only around 100,000.

"Weakened business activity and jobs growth compared to earlier in the year also led to widespread caution with respect to pushing up selling prices in the face of an uncertain outlook. Business expectations for the year ahead continue to run at one of the lowest levels recorded by the survey since 2012 with firms worried about trade wars, slowing economic growth at home and abroad, as well as the possibility of next year’s election cycle causing customers to postpone spending decisions.”

Commenting on the J.P.Morgan Global Composite PMI, Olya Borichevska, from Global Economic Research at J.P.Morgan, said:

“The rate of global economic expansion improved in November, according to the latest PMI surveys. The more encouraging aspect of the November report is the continued increase in the manufacturing PMI. While the services activity PMI also increased last month, the trend in the series remains down. We take comfort in the large jump in the employment PMI following more than six months of sharp declines. While the early signs are that the economy is positioned to strengthen, the drags provided by international trade and low confidence suggest progress will remain slow overall.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

October 2019 ISM and Markit Surveys

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The Institute for Supply Management’s (ISM) monthly sentiment survey showed that in October, U.S. manufacturing contracted at a marginally slower pace. The PMI registered 48.3%, up 0.5 percentage point (PP) from the September reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. Notable changes in the sub-indexes included a turnaround (although barely back into positive territory) in exports (+9.4PP) and a drop in input prices (-4.2PP). 

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The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- accelerated (+2.1PP, to 54.7%). Drivers behind the rise were concentrated in new orders (+1.9PP) and employment (+3.3PP). 

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Of the industries we track, only Paper Products contracted. Respondent comments included the following:

Construction -- "Current outlooks for commodities, equipment, and materials indicate purchasing now has leverage. Investment is still hampered by uncertainties in trade, global economic environment, manufacturing and the like."

Real Estate -- "Business remains brisk and well ahead of last year to date, as we near the peak of our busiest season. Looking ahead, our customers remain upbeat about their business well into next year."

Paper Products -- "Trade cost pressures continue to be a headwind in our business."

Relevant commodities:

Priced higher -- Lumber products.

Priced lower -- Freight, diesel and gasoline.

Prices mixed -- None.

In short supply -- Construction subcontractors; and labor (general, construction and temporary).

Findings of IHS Markit’s October surveys were mixed relative to their ISM counterparts, but the overall conclusions were the same -- the U.S. economy remains rather fragile.

Manufacturing -- PMI rises to six-month high in October

Key findings:

* Modest improvement in operating conditions as PMI rises to 51.3
* Faster upturns in output, new orders and employment
* Output prices broadly unchanged

Services -- Slowest rise in business activity since February 2016

Key findings:

* Marginal upturn in output
* Fastest fall in employment for almost a decade
* Renewed rise in input prices

Commentary by Chris Williamson, Markit’s chief business economist:

Manufacturing -- "Tentative signs of renewed vigor are appearing in the U.S. manufacturing sector, with the survey’s production gauge having now risen for three successive months to suggest that the soft patch bottomed out in July. Growth of new orders hit a six-month high, fueled in part by a renewed increase in exports, prompting producers to take on more staff, with payroll numbers rising at the quickest pace since May.

"The improvement in current conditions was matched by a lifting of business optimism about the year ahead to the highest seen since June. It was also encouraging to see this optimism feed through to an upturn in demand for investment goods, such as plant and machinery, as this hints that firms are moving back into expansion mode, albeit only tentatively so far.

"However, while the outlook has improved, further growth is by no means assured. Survey respondents continue to report widespread concerns over issues such as tariffs, the auto sector’s ongoing malaise, a lack of pricing power amid weak demand and uncertainty about the economic and political situation over the coming year. While the survey data are moving in the right direction, the overall picture therefore remained one of only very modest growth and guarded optimism."

Services -- “Although October saw signs of manufacturing pulling out of its recent soft patch, the far-larger service sector remained in the doldrums as inflows of new work failed to grow for the first time since 2009. Taken together, the manufacturing and service sector surveys consequently suggest that the U.S. economy got off to a disappointing start in the fourth quarter, consistent with GDP growing at an annualized rate of less than 1.5%.

“With inflows of new work drying up, firms are relying on previously-placed orders to sustain current output growth, meaning the rate of expansion could weaken further in coming months if demand doesn’t revive. Hence we’re seeing jobs being cut at an increased rate among surveyed companies, with employment falling for a second successive month and to a degree not seen since 2009. Such a weakening of the survey’s employment index will likely feed through to the official jobs numbers as we move toward the end of the year.

“The news was by no means all negative, however, with firms becoming more optimistic about the year ahead, buoyed by hopes of an easing of trade tensions and stimulus from lower interest rates. However, the overall degree of optimism remains sharply lower than this time last year as companies remain concerned by ongoing uncertainty about the outlook.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.