Economic Data Roundup (08/06/2020)

8/6/20 8:00 AM

Incoming reports continue to confirm that economic activity in America likely bottomed in the second quarter of 2020. For example, every regional manufacturing gauge from the Federal Reserve has improved markedly during the past two months, and additional evidence that the worst is behind us can be found in data released this week from IHS Markit and the Institute for Supply Management (ISM). Markit’s purchasing managers’ index (PMI) for the U.S. manufacturing sector, for instance, rose to 50.9 in July, a smaller increase than what occurred in June but still the first expansionary (above 50) reading since the COVID crisis began, and a large enough gain to suggest that the second wave of the coronavirus has yet to significantly impact the economic recovery in America. Even better, ISM’s manufacturing index jumped to 54.2 in July, which is not only back to pre-COVID levels but actually the highest reading in over a year. Markit’s service-sector PMI also continued to strengthen last month, as did the comparable gauge from ISM.


The only notable weak spot throughout these various activity gauges is employment, which has rebounded but much less than other components recently. This will correct itself as demand continues to improve, but in the meantime it could also mean that expectations for this Friday’s nonfarm payrolls report may be overly optimistic. Further, it is important to again point out that all of these activity metrics are diffusion indexes, meaning that all they can really tell us is how the proportion of managers who believe business conditions are getting better compares to the proportion that feels conditions are deteriorating. Seeing some gauges above 50 therefore does not necessarily mean that overall activity is back to pre-pandemic levels but simply that conditions in general are no longer getting worse. Markit’s Chris Williamson also cautioned that “further infection waves could of course derail the recovery, and many firms also cited the presidential elections as a further potential for any recovery to be dampened by heightened political uncertainty.” A similar cautiously optimistic sentiment can be seen below in some of the highlighted comments from business managers in the July ISM surveys:

Goods-Producing Firms

  • "Orders starting to pick up. [An] increase of about 35 percent to 40 percent." (Chemical Products)
  • "Overall business remains down almost 70 percent. We are hanging on to as many employees as possible, but we will have to lay off 30 percent or more for at least two to three months until September or October." (Transportation Equipment)
  • "Uncertainty regarding our industry and business has not improved. We are developing the 2021 budget around multiple scenarios." (Petroleum & Coal Products)
  • "General business climate continues to be subdued, driving highly conservative forecasting due to variability in the ongoing pandemic-driven conditions and economic response." (Machinery)
  • "We are still seeing our customers shut down or effected by COVID-19. We are hoping for a bounce back in September." (Miscellaneous Manufacturing)

Service-Providing Firms

  • “We’re still not certain whether or not the students will be coming back in their full capacity due to COVID-19. This has caused an influx of ordering safety supplies to prepare for the possibility. We have certainly increased our purchasing in the past month or so by a large amount.” (Educational Services)
  • “COVID-19 posture continues, with some 95 percent of the company workforce working remotely.” (Finance & Insurance)
  • “Surgical services still only scheduling at 50 percent capacity. Raw material shortages worldwide affecting ability to get finished PPE (isolation gowns, bouffant caps, shoe covers).” (Health Care & Social Assistance)
  • “Overall positive, but cautious outlook with oil prices stabilizing in the midst of the pandemic spiking again in our region. Our company has begun to put mitigation procedures in place to bring workers back to the office despite the lingering pandemic.” (Management of Companies & Support Services)
  • “Some business picking up, but mostly virtual meetings, training and consulting. Time will tell if its profitable. The economic situation is quite dire regionally, so there is no telling if this is a trend or just a short respite. Any business at this point is much appreciated.” (Professional, Scientific & Technical Services)
  • “COVID-19 interruptions are changing the way business is done.” (Real Estate, Rental & Leasing)
  • “Retail sales have continued to increase month over month, likely due to the general reopening of the economy. Mask mandates have been put in place for almost every market we operate in, causing an increased need for supply of masks for employees and customers.” (Retail Trade)



Sources: Econoday, IHS Markit, ISM, FRBSL

Post author: Charles Couch