U.S. Service-Sector Index Suffers Record Decline--Update
April 03 2020 - 11:34AM
Dow Jones News
By David Harrison
The U.S. services sector suffered a record fall in activity in
March amid efforts to slow the spread of the coronavirus -- and
analysts warned that subsequent months could show further
declines.
Private data firm IHS Markit said on Friday its U.S. services
index -- a survey-based measure of activity in industries such as
communications, finance and transportation -- saw its steepest
one-month decline since the survey began a decade ago.
The index fell to a seasonally adjusted 39.8 in March, down from
49.4 in February. The survey data was collected between March 12
and March 27, before some state-lockdown orders were in place.
Data in the coming months could be worse, said Chris Williamson,
chief business economist at IHS Markit.
"With more measures to fight the virus outbreak being taken,
this decline will likely be eclipsed by what we see in the second
quarter," he said. "More nonessential businesses are being forced
to close, some are going bust, and lockdowns are leading to vastly
reduced consumer spending."
A separate index released by the Institute for Supply Management
showed several measures of service-sector activity slowed sharply
in March. The index for business activity slowed to 48 from 57.8 in
February, the lowest reading since July 2009. And the index for
employment in the services sector for to 47 from 55.6 in
February.
A reading below 50 indicates a decline in activity in both
indexes.
The overall service sector index, however, showed continued
growth, at 52.5 in March, slowing from 57.3 in February. But that
figure largely reflects the unusual situation around an index for
supplier deliveries. In normal times, when businesses are having a
hard time getting supplies, it reflects strong demand, which pushes
an index of supplier deliveries into positive territory.
Now, with supply chains disrupted by the virus and consumers
hoarding goods, that index is rising, even though it doesn't
reflect consumer strength. In March, the supplier delivery index
rose to 62.1 from 52.4 in February, which helped pull the overall
index into positive territory.
"Because of the anomaly of what's going on in the world, this is
not something that's typical in economic activity," said Anthony
Nieves, chair of ISM's services survey committee.
Next month's reading is likely to show a struggling services
sector, he added.
"We're slowing considerably," he said.
Paul Ashworth, chief U.S. economist at Capital Economics, said
the survey should be read with caution.
"We strongly suspect the survey is simply missing the full
extent of the economic carnage currently developing," he said in a
note to clients. "Either because survey responses were submitted
earlier in the month or because many shuttered firms simply didn't
reply."
In parts of Europe, the decline in services activity was much
more severe. Italy's service providers suffered the largest
month-to-month fall recorded for any sector in any country on
record, with the purchasing managers index plummeting to 17.4 from
52.1 in February, the IHS said. Spain's services PMI fell almost as
sharply, to 23.0 from 52.1.
In both Italy and Spain, the activities that have been most
directly affected by strict lockdowns account for a larger share of
economic output than in recent years. In 2019, restaurants and
cafes, transport and retail services accounted for 22% of Italy's
gross domestic product, and 24% of Spain's. In the U.S., those
activities accounted for just 16% of GDP in 2017, the most recent
year for which comparable figures are available.
Write to David Harrison at david.harrison@wsj.com
(END) Dow Jones Newswires
April 03, 2020 12:19 ET (16:19 GMT)
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