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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
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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
* 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
* 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.
