This week’s lone notable data release in the US (aside from jobless claims) is a huge beat.
ISM non-manufacturing came in at 57.1 for June, blowing away consensus, which was looking for a 50.2 print.
The range of estimates from 62 economists was 47 to 54, so this is easily better than the most optimistic guess. Business activity exploded higher to 66 from 41 in May.
The upbeat read on the services sector comes on the heels of last week’s upside surprise on the manufacturing gauge, which also came in well ahead of expectations, printing in expansion territory for the first time since the onset of the pandemic.
The 11.7-point MoM gain on the non-manufacturing index is the largest single-month percentage-point increase since the gauge’s debut in 1997. April marked the biggest one-month decline, at 10.7 points.
As was the case with the manufacturing gauge, the distortion from inflated supplier deliveries faded – the deliveries index “now more closely correlates to current supply and demand”, ISM said.
Not surprisingly, the employment index remained in contraction for a fourth straight month. You’re reminded that prior to the COVID panic, the non-manufacturing employment subindex was in expansion territory for 72 consecutive months.
“We have a hiring freeze but also a no-layoff policy during the crisis; reductions are due to natural attrition”, one respondent said.
A trio of industries reported an increase in hiring last month: Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; and Construction. Obviously, new restrictions on restaurants and bars could imperil the return of workers to the food services industry, so that’s something to look out for in July. 11 industries reported a reduction in employment.
In any case, I suppose if there’s a downside to this it’s that it could bolster the dollar and, more importantly, erode support for additional stimulus at the margins — or at least among GOP’ers who are reluctant to spend more money to support the recovery.
Via ISM
WHAT RESPONDENTS ARE SAYING
- “Businesses are starting to reopen and the economy seems to be on the road to recovery, but let’s not get too complacent, [as] COVID-19 is still a pandemic, [and] a vaccine has not been developed. Economics is the reason for the push for businesses to reopen. Utmost care and awareness still needs to be cautiously and religiously followed.” (Accommodation & Food Services)
- “Surprising recovery to sales volume over the past four weeks.” (Agriculture, Forestry, Fishing & Hunting)
- “Sales have picked up tremendously. Sporadic supply issues. Biggest concern for us is lumber shortages.” (Construction)
- “We are a public higher-education institution. We are expecting budget cuts for fiscal year 2021. Our biggest concern is COVID-19. The plan for a vast majority of higher education institutions is to have students on campus and blend of face-to-face and online classes. However, if students do not effectively social distance, then we could see a dramatic increase in COVID-19 and campuses forced to move to online classes. This will be a major financial blow to revenue for all universities (athletic events, vending, parking, housing, and the like).” (Educational Services)
- “We continue to all work from home globally. Strict restriction on travel and external events. Senior management focusing on a plan for returning to the office.” (Finance & Insurance)
- “COVID-19 has affected us, of course – obtaining PPE supplies has been our focus. Overall census has been very low. Operating rooms, rehab clinics and physician practices were closed or working fewer hours but have since opened back up.” (Health Care & Social Assistance)
- “Advertisers are starting to place more advertisements and the media business is turning around. Generally, we are at the end of the employee furloughs and layoffs. Our work efforts have been focused on navigating COVID-19. We are now shifting to value-add projects. We are cautiously optimistic, although as we get closer to the presidential election, we are on guard of unprecedented civil and social unrest.” (Information)
- “Activity level is holding steady, with the potential of a rebound in the near future.” (Mining)
- “We have seen an overall reduction in our business as a result of COVID-19, with the greatest reduction in the aviation and oil and gas industries. In contrast, the pharmaceutical industry has seen an increase in business during the same time frame.” (Other Services)
- “COVID-19 and the riots have disrupted the normal flow of business. There is no new normal yet.” (Real Estate, Rental & Leasing)
