Coronavirus: US services sector contracts for first time in over a decade
The US services sector shrank for the first time in more than a decade in April, survey data has shown, as coronavirus lockdown measures caused demand to plummet and businesses to close.
The Institute for Supply Management’s (ISM) closely watched “PMI” gauge of services sector activity fell to 41.8 in April.
It was the first contraction – which is marked by a score under 50 – since December 2009. It was also the worst reading since March 2009, when the US economy was being pummeled by the financial crisis.
Nonetheless, the reading came in above analysts’ expectations of a score of 36.8. This reflected a distortion in the PMI gauge, which showed a lengthening of supplier delivery times.
Longer delivery times are normally a positive sign, reflecting high demand. But in April they showed there were supply shortages as production was disrupted by coronavirus.
The survey data is the latest indicator that the world’s biggest economy is in a recession of a size not seen since World War II.
More than 30m Americans have made new jobless claims over the last six weeks. The scale of job losses far surpasses the financial crisis.
The ISM survey confirmed that Americans are losing their jobs at an unprecedented rate. The survey’s index of employment dropped to 30 in April, the lowest reading since 1997, from 47 in March.
Official “nonfarm payroll” employment figures are due out on Friday. According to a Reuters survey of economists, nonfarm payroll numbers are forecast to have slumped by a record 21.9m in April.
Such a drop would send the unemployment rate to around 16 per cent. This would be markedly higher than at any other time since World War II.
Gregory Daco, senior US economist at consultancy Oxford Economics, said: “Social distancing measures are being gradually lifted, but it will take time to undo the economic damage.”
“Significantly weaker demand, supply chain disruptions, tighter financial conditions, and uncertainty over the virus’s trajectory will pose considerable headwinds to an economic rebound.”