Services Clobbered by Closures

By
Economic Report Monitor #28
May 5th, 2020

Advisor Perspectives

Two days after IHS and ISM released reports on the weakening of manufacturing, the organizations have done the same for the service (and non-manufacturing) sector. The IHS Markit version of the report saw "unprecedented contractions in output, new business and employment" as the index fell from 39.8 in March to 26.7 in April. The reduction in the workforce was the largest seen in series history. However, there was a notable amount of responses that said they had furloughed workers instead of laying them off with hopes of improvement on the horizon. The drop in capacity in response to the drop in demand has lead to a drop in input costs as wages and commodity prices fell. As expected, face-to-face businesses felt the pain the most.

The Insititute of Supply Management's (ISM) report saw similar pain with the index falling from 52.5 to 41.8 in April. Business activity fell -22.0 pts to 26.0, new orders fell -20.0 pts to 32.9, and employment fell -17.0 pts to 30.0 to make them the weakest indicators. For the first time in many PMIs, inventory sentiment looked to be much higher. Inventories grew 5.4 pts to 46.9 sparking a 14.8 pt increase in inventory sentiment to 62.6 as most respondents were worried inventories were too high. Backlog of orders turned from increased to contracting with a -7.3 pt drop. A comment from the agriculture industry highlights the pain felt from the lack of demand from processing centers:

“The COVID-19 situation has created significant challenges for the agricultural sectors. Milk prices have declined 29 percent in a few weeks. Milk is being dumped on farms because of the loss of markets. Cattle prices are down 28 percent, pork prices down 24 percent, [and] all agriculture sectors are facing significant price declines. Our agriculture economy is challenged, with poultry, pork, and beef processing plants closed due to COVID-19 cases or impaired due to employees afraid to work side-by-side with other employees. Farmers cannot sell fat cattle locally due to processing plant shutdowns.” 

The lack of demand is also being felt abroad as a -9.6% drops in exports has lead to an 11.6% increase in the trade deficit in March. The largest drops came from a $7.5 billion drop in travel, a $2.9 billion drop in industrial supplies (mostly energy-related), a $2.6 billion drop in transport, and a $2.5 billion drop in automobile and parts. A sizable decline in imports kept the trade deficit growth from being larger than it could have been. Travel and transport, again, lead in the imports drop as well as a $2.7 billion drop in automobiles and parts and $4.0 billion in consumer goods. The trade deficit with China actually fell $4.2 billion in March with a large decrease in Chinese imports, but the trade deficit with the EU widened as the US's largest importer saw demand for US goods soften.


Comments

Post a Comment

Popular posts from this blog

Prolonged Tariff Dispute Threatens the Farming Industry: Lessons from the 1980s

By
Image
President Trump's protectionist trade policies have been one of his more contentious economic policies garnering resistance from critics of all political leanings. The tariff dispute between the United States and China is the most well-known consequence of these policies and has resulted in economic growth worries. The U.S. stock market sat on the brink of a full-on bear market at the end of 2018 but recovered sharply in the first two months of 2019. Observers continue to monitor negotiations between top U.S and Chinese conveys that have yet to produce a decisive trade agreement. Soybean and corn farmers are two groups within those observers that are watching closely in hopes of seeing their markets improve. According to Reuters , USDA Chief Economist Robert Johansson reported that “under the trade dispute, exports to China alone have plummeted by 22 million tonnes, or over 90 percent.” The dramatic reduction in Chinese exports so far has weighed on the latest 2019 projectio...
Read more

World Employment and Social Outlook Trends 2020

By
Image
The International Labour Organization (ILO) recently released its principal report of the upcoming year of 2020. The "World Employment and Social Outlook: Trends 2020" publication brings to the forefront the trends seen in the global workforce whether and how they are enhancing or inhibiting economic growth. The organization identified four forces that are changing the way we work and grow as a global society. As seen by the growth of inequality in most economies, "the lack of inclusiveness" is likely to "impair the ability of lower-income countries to reduce poverty and improve working conditions" especially in conditions of slower economic expansion. Despite largescale technological advancements that cause low-income economies to see an accelerated growth rate in high productivity jobs, those economies have lagged against their higher-income, more industrialized peers. The report points out that "between 2000 and 2018, the employment share...
Read more