Newly released survey data shows US economy in better shape than expectedOn July 6, 2020 by Thomas Belayneh
Data released this afternoon gave credence to the notion that non-manufacturing economic activity is recovering in a V-shaped fashion. US equity indices are up by over 1% as investors jubilantly cheer the economic data in spite of record Covid-19 case rises over the weekend.
IHS Markit’s US Services PMI for the month of June was 47.9, which was much higher than May’s reading of 37.5, but still short of the no-change-in-activity-threshold of 50.
The reading was 1.3 points ahead of the consensus expectation and was the best print since February, as easing restrictions and rising customer demand softened the rate of output decline.
New orders stabilised this month after declining for the three months since March, as respondents noted a pick up in customer demand. Moreover, exports rose for the first time this year. The combination of these factors led to a softening in rate of job cuts, as firms retained workers to process new orders.
Standing out in the report was the mention of inflationary pressures starting to build, as both input and output prices rose in response to suppliers hiking the prices.
Rises in input costs was the highest recorded since February 2019. Firms passed on these higher costs to their customers, similarly causing the sharpest rise in output prices since February of last year.
Excess capacity remained although slightly less than prior months, as backlogs of work reduced only marginally in the reporting period of 12th June to 29th June. Some respondents did, however, note increasing customer demand placing pressure on their capacity.
Lastly, business confidence was back in the green in June, as businesses expressed optimism over rises in new orders and exports following two months of pessimism in the outlook.
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