Non-manufacturing is up in June but COVID-19-related concerns remain

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Non-manufacturing activity saw a strong increase, from May to June, according to the most recent edition of the Non-Manufacturing Report On Business, which was issued this week by the Institute for Supply Management (ISM).

The report’s key indicator—the NMI—saw an 11.7% increase to 57.1 (a reading of 50 or higher indicates growth is occurring), halting a two-month stretch of declines, which was preceded by 122 consecutive months of expansion. ISM noted that June marked the largest single-month percentage increase, for the NMI, going back to its inception in 1997. The May NMI rose 3.6% to 45.4, which followed a 10.7% decline, to 41.8, in April, which was the biggest one-month decrease on record and reflected the impact of the ongoing COVID-19 pandemic on non-manufacturing. The June NMI reading is 4% of the 12-month average of 53.1 and is the second highest reading over that span, trailing February’s 57.3.

ISM reported that 14 of the 17 non-manufacturing sectors it tracks saw gains in June.
Most of the report’s equally weighted sub indexes that directly factor into the NMI saw gains in June, including:
• business activity/production up 25%, to 66, stopping three months of declines, for its largest single month gain;
• new orders rose 19.7%, to 61.6, ending two months of contraction;
• employment headed up 11.3%, to 41.3, ending three months of contraction; and
• supplier deliveries, at 57.5 (a reading of 50 or higher indicates contraction), slowed at a slower rate for the 13th consecutive month

Other notable metrics in the report included a 6.8% in prices, to 62.4, rising for the third straight months, and inventories grew by 12.7%, to 60.7. Backlog of orders increased by 5.5%, to 51.9.

Comments in the report submitted by ISM member respondents were cautiously optimistic about the current state of non-manufacturing, due to some signs of economic momentum, with that optimism tempered by a growing number of COVID-19 cases in recent weeks.

“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,” said an Accommodation & Food Services respondent. “Economics is the reason for the push for businesses to reopen. Utmost care and awareness still needs to be cautiously and religiously followed.” And an Agriculture, Forestry, Fishing & Hunting services respondent pointed to a surprising recovery to sales volume over the past four weeks.

In an interview, ISM Non-Manufacturing Business Survey Committee Chair Tony Nieves said that June’s impressive numbers come on the heels of two very difficult months, in April and May, which were heavily impacted by the economic damage brought on by the COVID-19 pandemic.

“These indexes are not what the economy is; they are telling you the direction of the economy,” he said. “In June, four governors that represent probably 30% of the U.S. population recently shut things down again, and that is not reflected in these numbers but will probably be in July. One week of June data will be carried over into July, and hopefully by the mid-July, maybe the back-end strength of July will show those numbers not being too bad.”

What’s more, the months leading up to June represented a bottoming out, of sorts, according to Nieves, with COVID-19 leaving conditions at the bottom of the barrel.

Looking ahead, Nieves said what happens with COVID-19, in terms of the number of cases, the fatality rate, and tests, among other things will play a role in what happens on the economic front. And he added that it would be very difficult for non-manufacturing to withstand what happened in April and May—in the form of a total closure of the economy—again for any prolonged period of time.

About the Author

Jeff Berman, Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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2020-07-07 08:15:00

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