Click image
for larger version
The Institute for
Supply Management’s (ISM) monthly sentiment survey showed U.S.
manufacturing moving back into expansion during June. The PMI
“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.
Click image
for larger version
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.”
Click image
for larger version
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
* 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
* 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.
