First June PMI Signals a V-shape Rebound

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Economic Report Monitor #46
June 23rd, 2020

The first look of June manufacturing data was released today as IHS Markit reported its IHS Markit Flash U.S. Composite PMI. In true V-shaped fashion, the composite index shot up to 46.8, up from 37.0 in May and about 27 in April. The service and manufacturing index were equally as strong as both bounced from high 30's to high 40's as demand returned with the reopening of the economy in early June. However, some businesses noted that "renewals and requests for new business were historically muted." Employment contractions slowed as well as furloughed staff returned, but many businesses were still forced to cut labor costs. A recovering cost of business was also visible in rising prices paid and received by businesses as deflationary effects eased. Still, IHS suggests any economic expansion "will be prone to losing momentum due to persistent weak demand for many goods and services." It would not be entirely surprising if this "flash" number is reversed in the latter half of June as some states see a spike in new cases.


Richmond Fed's Manufacturing Survey also exhibited V-shaped behavior as the headline composite index completed a rebound from -53 in April to 0 in June. Shipments and new orders completed even stronger jumps over the past two months from -70 and -61 to -1 and 5. Employment readings rebounded as well but not quite as strongly. Number of employees and workweek grew to about flat, -5 and 1, from a moderate contraction at -21 and -28. On a more pessimistic note, measures of spending were dismal. Capital spending, equipment & software spending, and services expenditures all remain in the negative territory as businesses react to uncertain times. Expectations remain more optimistic as usual with most businesses expecting growth in shipments, new orders, capacity utilization, employment, and local business conditions. June data for this region might be interesting for Richmond since the May data seems to have already completed a V-shaped rebound (in demand and production at least). Will businesses reach a more comfortable expansion? Or will a second wave stifle it once again?

New residential sales signaled further strength in the economic recovery, especially in the real estate market, as it grew 16.6% in May. The hardest-hit regions saw the recovery the most as Northeast home sales grew 45.5% and West home sale grew 29.0%. The increase in sales has taken new construction by surprise with months' supply falling from 6.7 to 5.6 in May, a -16.4% decrease. As the real estate market returns to its state of tightness, prices continue to rise after a brief dip in April. The situation looks like it could get worse as homes on the market that are currently under construction drops from 184,000 to 171,000, a 2019-2020 low. 

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