Monday, July 06, 2020

The "V-shaped" Recovery Continues: Now It Is The ISM PMI and Non-Manufacturing Index

I have noted in a few recent posts that much of the economic data being reported is recovering in a "V-shaped" manner. In other words the economic rebound taking place as states are reopened and businesses get up to speed is occurring at a strong clip. Today's ISM Non-Manufacturing Index report came in at 57.1%, an increase of 11.7 percentage points over May's 45.4% reading. ISM noted this was the largest single month increase in the index's history going back to 1997. Last week's ISM report on the Purchasing Manager's Index (PMI) jumped into expansion territory with the PMI coming in at 52.6%, up 9.5 percentage points from May's reading.

The new orders component of the Purchasing Managers' Index was reported at 56.4%, an increase of 24.6 percentage points over May's reading. This was the largest single month over month increase in new orders in the index's history which goes back to January 1948.

One reason for the strong recovery with much of the economic data, aside from coming off of a low level, is the current recession was not caused by excesses that were built up in the economy that needed to worked off. Consequently, as business reopen the activity is broad based and widespread. A couple of comments from respondents in the  PMI survey,

  • "Difficulty keeping up with a significant increase in demand related to COVID-19. Industry is up 62.5% versus [a] year ago. Supply challenges throughout the supply chain. Supply could be hindered if another wave of COVID-19 hits in the fall."
  • "Orders have picked up and are trending toward normal production requirements [volume similar to 2019 production]."
So long as virus issues are contained to a small number of hotspots, the current recession may be a short lived one.

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