US Economy ‘Deeply Scarred,’ As PMIs Show Tepid, Albeit Readily Perceptible, Recovery

While PMI data across the pond came in generally ahead of expectations for June in the flash reads from IHS Markit, the ongoing rebound was less robust stateside.

Both the services and manufacturing gauges missed, with the former printing 46.7, below expectations for 48, and the latter coming up just shy of consensus at 49.6.

I doubt if anyone will be particularly enamored with these prints, especially considering recent data (sans jobless claims anyway) has generally bested expectations.

The color from IHS Markit is mixed. “Despite many firms noting a rebound in client demand, some stated that renewals and requests for new business were historically muted”, the release reads.

There were some positive remarks on business from abroad, but the labor market commentary is somewhat downbeat. To wit:

The June survey meanwhile signaled further cuts to workforce numbers across the private sector, albeit at only a modest rate. Where an increase was noted, some businesses reported the return of furloughed staff. That said, hiring freezes and relatively weak demand led many other companies to shed employees in an effort to cut costs.

The outlook has, of course, improved, but that isn’t saying much considering where we were a few months back. Here’s a bit more:

Private sector firms also reported a notable pick-up in confidence in June, with the degree of optimism about output in the year ahead reaching a four month high. Expectations of a rise in activity over the coming year contrasted with negative sentiment seen in April and May. The reopening of states and reports of client interest reportedly sparked the return to optimism.

That generalized “hope” was evidenced in the critical services sector, where conditions aren’t great by any stretch, but are seen recovering on expectations for a pickup in demand tied to reopenings across states.

In manufacturing, the deterioration in activity was marginal in June. “The marked softening in the pace of overall decline largely stemmed from notably slower falls in output and new orders”, IHS Markit says.

Chief Business Economist Chris Williamson warns that no matter how robust the recovery, this historic episode will not simply fade away without leaving an indelible mark.

“Although brief, the downturn has been fiercer than anything seen previously, leaving a deep scar which will take a long time to heal”, he remarked on Tuesday, adding that “any return to growth will be prone to losing momentum due to persistent weak demand for many goods and services, linked in turn to ongoing social distancing, high unemployment and uncertainty about the outlook, curbing spending by businesses and households”.

Williamson also states the obvious, which is that “the recovery could be derailed by new waves of virus infections”.

There are, in fact, such “new waves” developing in a number of states — even if Larry Kudlow steadfastly refuses to admit it.

Fortunately, there’s always the Fed.

“Continual vigilance by the Fed, US Treasury and health authorities will therefore be required to keep any recovery on track”, IHS Markit concludes, summing up their mid-month assessment of the US economy in terms befitting of these rather unfortunate times.