PMI: May sees further steep fall in output

IHS Markit Flash U.S. Services PMI™

The seasonally adjusted IHS Markit Flash U.S. Services PMI™ Business Activity Index registered 36.9 in May, up from the record low of 26.7 in April, but nonetheless signaling one of the most severe contractions in service sector activity on record.

The reduction in output was driven by further weakness in domestic and foreign client demand. Total sales continued to decrease sharply and at the second-steepest rate in the series history, as consumer-facing sectors struggled to safely return to work.

Mirroring uncertainty towards future business activity, service providers placed employees on furlough or were forced to cut workforce numbers, and at a marked pace.

In an effort to attract and retain clients, firms reduced their output charges at a solid pace in May. Some also noted that the fall was reflective of a drop in input costs which was being passed on to customers.

IHS Markit Flash U.S. Manufacturing PMI™

Manufacturers registered a further substantial deterioration in operating conditions midway through the second quarter, as the IHS Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™)1 posted 39.8 in May, up from 36.1 at the start of the second quarter.

Driving the deterioration were significant contractions in production and new orders, as businesses slowly returned to work amid challenging domestic and foreign demand conditions. The rates of reduction were among the most marked since the depths of the financial crisis.

Meanwhile, another monthly fall in backlogs of work led to further spare capacity at goods producers, with employment declining at a historically sharp pace amid reports of furloughing, lay-offs and reduced working hours.

Manufacturers were still concerned as to the purchasing power of their clients following the pandemic, with many continuing to reduce their output charges in the hope of boosting sales amid a second monthly decline in input costs.