Late last month, IHS Markit said that for the first time in four years, the US services sector contracted.
The disconcerting flash print on the services gauge was accompanied by the lowest Markit composite PMI print since October of 2013. Those warning signs came on the eve of what, at the time, was the worst week for US stocks since the crisis. That week (the last week of February) was eclipsed by recent massive declines, but it was the proverbial shot across the bow for a bull market which has since perished in a flurry of gunfire.
Fast forward a month, and the flash read on Markit’s services gauge for the US in March is terrible – and by that I mean it printed 39.1. That’s the lowest on record and worse than even the most pessimistic estimate from nearly two-dozen economists.
“The decrease in sales was the quickest since data collection began in late-2009, as both domestic and foreign client demand weakened”, IHS Markit said, adding that “companies highlighted challenging conditions across the services sector, especially in travel and tourism and other consumer-facing industries”.
The manufacturing gauge held up ok at 49.2, but the outlook is dour. “The headline PMI was buoyed by longer supplier delivery times [but] steep rates of contraction were signaled for production and new orders, both of which fell to the greatest extent since 2009, with many firms linking this to the escalation of preventative measures following the outbreak of COVID-19″, the report reads.
At 40.5, the composite gauge now sits at a series low, and that does not bode well for the US economy.
“The survey underscores how the US is likely already in a recession that will inevitably deepen further”, IHS Chief Business Economist Chris Williamson remarked, adding that the March PMI is “roughly indicative of GDP falling at an annualized rate approaching 5%”.
Williamson goes on to state the obvious: “But the increasing number of virus-fighting lockdowns and closures mean the second quarter will likely see a far steeper rate of decline”.
Indeed it will. “The service sector has been especially badly affected, with consumer-facing industries such as restaurants, bars and hotels bearing the brunt of the social distancing measures, while travel and tourism has been decimated”, Williamson continued, noting that “jobs are already being slashed at a pace not witnessed since the global financial crisis in 2009 as firms either close or reduce capacity amid widespread cost-cutting”.
Below is a snapshot of where things stand as markets nervously eye the future for the world’s largest economy:
Meanwhile, the Trump administration continues to suggest that, against the advice of some in the medical community, the White House may try to reopen the economy by the end of this month.
Larry Kudlow on Tuesday told Fox Business the administration could try to get things cranked up again within weeks. “It’s not either or” with public health, he said, insisting that America “must keep payrolls up”.
“This doesn’t mean we’re going to leave social distancing [and] that doesn’t mean we’re going to walk away from advice of health experts”, he went on to say. “It just means we’re going to take a slightly different look at this”.