US Services Sector Survey Signals Rebound, But “Limited Scope For V-Shaped Recovery”

Modest rebounds in Manufacturing survey data helped spark yet more optimism that everything is going to be awesome (despite the data missing expectations and remaining deep in contractionary territory). Today’s Services survey data is also expected to show a rebound.

  • Markit US Manufacturing 39.8, up from 36.1 (but below expectations)

  • Markit US Services 37.3, up from 26.1 (but below expectations)

  • ISM US Manufacturing 43.1, up from 41,5 (but below expectations)

  • ISM US Services 45.4, up from 41.8 (above expectations)

Source: Bloomberg

Expectations towards the outlook for output over the coming year remained negative in May, as uncertainty regarding the length of any recovery and when this would begin reportedly weighed on sentiment. That said, the degree of pessimism moderated as states loosened lockdown measures.

The purchasing managers group’s gauge of business activity, which parallels the ISM’s factory production index, jumped 15 points, the most in records dating back to 1997, to a still-tepid 41.

The report, however, also showed the labor market remains severely disrupted by the pandemic. The ISM measure of employment at services, which represent almost 90% of the economy, only rose 1.8 points from the worst reading on record in April.

The IHS Markit Composite PMI Output Index posted 37.0 in May, up from April’s record-breaking low of 27.0.


Although the pace of decline eased, it remained significant and the second-fastest since data collection began in October 2009.

Commenting on the latest survey results, Chris Williamson, Chief Business Economist at  IHS Markit, said:

The PMI numbers indicate that the US economy remained in a steep downturn in May. Encouragingly, the rate of contraction has eased considerably since the height of the lockdown in April as some firms get back to work and economic activity starts to resume.

“While views about prospects for the year ahead remained negative on balance, the degree of pessimism has also moderated considerably since April, to hint that sentiment is improving as increasing numbers of companies see the worst of the lockdown being behind them.

“A substantial part of the service sector nevertheless continued to be devastated by social distancing measures, and looks set to remain so for some months to come, limiting scope for a v-shaped recovery. The ongoing steep fall in employment remains a particular concern, pointing to a weakened consumer sector but also underscoring heightened risk aversion as companies seek to cut costs in the face of collapsing sales and an uncertain outlook.”

Still with stocks back at record highs, what could go wrong?

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