Decline eases in US services sector but economy stays in rut
The decline in the US services sector eased somewhat in May, survey data has shown, but the dominant part of the economy remained stuck in a downturn.
The closely watched purchasing managers’ index (PMI) gauge from the Institute for Supply Management (ISM) came in at 45.4 in May. That compared to the sharp plunge to 41.8 in April.
It came in above expectations, however, with analysts predicting a reading of 44. A score below 50 indicates that the sector contracted compared to April. Yet some analysts have said April was probably the low point for the economy.
The US services sector makes up the bulk of the economy. It is therefore crucial to global economic growth.
It crashed dramatically in April as states put in place strict lockdowns. With people confined to their homes, main street spending plummeted.
Today’s ISM survey indicated that the pace of the downturn eased in May. But it showed that the sector remained deeply depressed by historical standards.
The employment gauge undershot expectations, suggesting the US jobs rout has not run its course. More than 40m people have claimed unemployment insurance since the pandemic began, with joblessness expected to hit levels not seen since the Great Depression.
A separate US survey from data firm IHS Markit also showed the speed of the downturn easing. IHS Markit’s services business activity index rose to 37.5 in May from April’s record low of 26.7.
Chris Williamson, Chief Business Economist at IHS Markit, said: “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.”
“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.”