The Institute for Supply Management’s April report on the service sector, like its manufacturing cousin, implies that the domestic economy has not yet troughed.
The ISM said on Tuesday that the forward-looking new orders and business activity components of its Non-Manufacturing Index declined to 32.9 and 26, well below the 41.8 top line, suggesting that there is more pain ahead in the economy. Anything above 50 in the index represents expansion, while below 50 represents contraction.
Most important, ahead of Friday’s U.S. employment report for April, the employment subindex declined to 30 from 47. All this reaffirms that the U.S. economy collapsed into recession in late March.
While some are making the case that the nascent and partial reopening of the economy will mark the nadir of the recession, our tracking of microdata suggests that bottoming out should occur later this month.
The shock to the service sector is best illustrated by the decline in backlogs from 55 to 47.7, which is poised to drop further. The one bright spot in the survey was the increase in inventory sentiment to 62.9 and a slower pace of contraction in inventory change at 46.9. Prices paid increased to 55.1 and imports to 49.3.
Their own words
The words of those surveyed in the report, known as verbatims, always help illuminate the story behind the numbers. Here is a look at what the Institute for Supply Management published::
- “Significant shortages of personal protective equipment (PPE), chemical reagents, test swabs and other basic medical supplies persist. Extreme sourcing measures are required to procure necessary supplies for basic operations. Distributor allocations continue across the board.” (Health care and social assistance)
- “Severe impact to operations as a result of Covid-19. Major challenges in obtaining needed supplies for first responders, including N95 masks, gowns, disinfecting products and medical supplies. As a local government, we are experiencing a significant increase in activity due to emergency-response efforts. Starting to experience inappropriate price increases for short-supply items.” (Public administration)
- “Significant demand disruption caused by the coronavirus.” (Accommodation and food services)
- “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.” (Construction)
- “Covid-19 shelter-in-place order in effect. Offices closed except for essential personnel.” (Educational services)
- “Like most businesses, we cannot fully project how the coronavirus will impact us. By displaying prudence and avoiding panic, we are trying to navigate this crisis. As human capital is our greatest expense, protecting that capital is job one. Supply chains are overstressed and will normalize only when the panic subsides.” (Information)
- “Covid-19 has greatly impacted daily operations. All staff personnel are telecommuting, and customer concerns have shifted from normal activities to preventative measures.” (Management of companies and support services)
- “We are experiencing no real issues from a business perspective, although Covid-19 has forced us to reconsider elements of how our workforce gets things done.” (Mining)
- “As expected for many industries (whether manufacturing or non-manufacturing), purchasing has slowed as we evaluate the economic climate and prepare for long-term effects.” (Retail trade)
- “The coronavirus is affecting every aspect of business.” (Real state, rental and leasing)
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
