ISM: April non-manufacturing data sees steep declines due to COVID-19

As was the case with its manufacturing report counterpart, non-manufacturing activity in April felt similar COVID-19, or coronavirus, pain, according to the new edition of the Non-Manufacturing Report On Business, which was issued today by the Institute for Supply Management (ISM).

The report’s key indicator, the NMI, fell 10.7% to 41.8 (a reading of 50 or higher indicates growth is occurring), coming off of March’s 52.5 reading, which stands as the highest reading in the last year. It is the lowest reading since the 40.1 recorded in March 2009 and contracted for the first time since December 2009, halting a 122-month stretch of growth.

ISM reported that only two non-manufacturing sectors, Public Administration and Finance & Insurance, saw gains. The 16 industries reporting declines were Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Other Services; Wholesale Trade; Construction; Transportation & Warehousing; Mining; Professional, Scientific & Technical Services; Information; Accommodation & Food Services; Management of Companies & Support Services; Educational Services; Real Estate, Rental & Leasing; Utilities; and Health Care & Social Assistance.

Most of the report’s equally weighted subindexes that directly factor into the NMI were down in April, including:

● business activity/production down 22.0% to 26.0, which represents its lowest reading going back to the report’s inception in 1997 and down for the second straight month after growing for 127 months;
● new orders fell 20.0% to 32.9, snapping a run of 128 months of growth;
● employment was down 17.0% to 30.0, down for the second straight month after 72 months of growth; and
● supplier deliveries slowed at a faster rate for the 16th straight month, up 16.2%, to 78.3 (a reading of 50 or higher indicates contraction), for its highest reading ever. ISM said that over March and April supplier deliveries are down a cumulative 25.9%, with the decline mainly a product of supply problems related to COVID-19

Other notable metrics in the report included a 5.1% increase in prices, to 55.1, flat compared to March, and inventories headed up 5.4% to 46.9, down for the second straight month. New export orders, at 36.3, fell 9.6%, contracting at a faster rate for the second straight month, for its lowest reading since coming in at 34.5 in November 2008. And imports, at 49.3, rose 9.1%, contracting at a slower rate for the second straight month and falling for the sixth time in the last eight months, as well as the biggest percentage increase since February 2016. Backlog of orders, at 47.7, was off 7.3%, for its largest decline since September 2007.

Like the March report, comments submitted by ISM members primarily focused on the challenges coronavirus have created for non-manufacturing, or service-based, sectors.

A construction respondent explained that COVID-19 is altering the operation, supply chain and sales process of home building, adding that stay-at-home orders have hampered business in residential construction. A retail trade respondent pointed to new challenges working from home and getting inventory to the retail locations.

In an interview, Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, said that the impact of COVID-19 on non-manufacturing in April can’t be understated.

“The key thing now is when is the recovery and what is the timeline for it?” he said. “Will the easing of stay-at-home restrictions be geographical, as it is based on the penetration of the virus, with more remote areas less impacted. It all boils down to consumer confidence and what restrictions are in place.”

And, in regards to consumer confidence, he noted a lot depends on how things look when restrictions are lifted, specifically as it relates to the services sectors for things like events, gatherings, and restaurants, among others, as well as whether consumers are comfortable taking part in those types of activities, too.

“That will really depend on what things look like,” he said. “In the event there is not a V-shaped recovery, things will be drawn out, coupled with how many business operators are able to recover from this. Many corporations have reserves to tide them over, but that is something the small business operator does not have, so it goes back to how things like the personal payroll protection and other stimulus helps them. There are a lot of variables.”

Nieves noted that he was recently asked if the ISM differentiates between consumer business activity compared to business-to-business activity.

“We don’t do that, but there is a connection there to trucking, distribution, and wholesaler activity,” he said. “Trucking capacity is down, and that is more correlated to driver resources, not so much like we had in the past but more from this pandemic and not having access to people that want to work in this environment, and demand is down. Deliveries are also down and more so based on supply chain interruptions than it is on actual demand, with demand isolated to certain categories and commodities and is not widespread.”

And he added that under normal circumstances in non-manufacturing, there would be lower pricing driven down by where the price of oil is, with prices that would likely be contracting at this point, were it not for the challenges with availability more than anything else.

Looking ahead, Nieves said there is likely to be more pain, in the form of difficult numbers, before there is a turnaround.

“We are hoping that with the easing of restrictions that we are starting to flatten out right here,” he said. “That is my hope and it might be the case, but we will have to see.”