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Business activity slumps further in U.S. but speed of downturn eases

Christian Fernsby |
U.S. service providers indicated a further significant, albeit softer, contraction in business activity in May, as the impact of the coronavirus continued to dampen client demand.

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Topics: U.S.   

At the same time, new order inflows declined at a slower rate than in April, despite domestic and foreign demand remaining subdued.

Consequently, companies cut jobs at a considerable pace, and one that was only slightly slower than April's recent record.

The reduction in employment partially stemmed from pessimism among firms towards the outlook for activity over the next year, as extreme levels of business uncertainty weighed on confidence.

In an effort to boost sales, firms reduced their selling prices further.

The drop in output charges was aided by lower cost burdens.

The seasonally adjusted final IHS Markit US Services Business Activity Index registered 37.5 in May, up from April's record low of 26.7 and slightly higher than the ‘flash’ figure of 36.9.

The rate of reduction in activity softened notably amid some reports of businesses returning to work, but was nonetheless the second-sharpest since data collection began in October 2009.

The decrease in service sector output was widely linked to emergency public health measures introduced to stem the spread.

Stay-at-home measures and social distancing presented challenges to business reopening, especially those who focus on customer-facing services.

The overall decline in output was also reportedly linked to weak client demand.

A number of firms stated that new order inflows remained sluggish as some clients were yet to reopen following temporary shutdowns.

With the exception of April's recent Output and new business drops substantially as coronavirus crisis continues Business confidence improves but remains negative Input costs and output charges fall further Data were collected 12-28 May 2020.

Including IHS Markit U.S. Composite PMI low, the latest data indicated the steepest reduction in new orders since the series began.

Some firms suggested domestic demand was slowly picking up following a loosening of restrictions, however, new business from abroad also decreased at a historically substantial pace.

Alongside ongoing global lockdown conditions, firms suggested that travel restrictions had limited foreign demand.

Expectations towards the outlook for output over the coming year remained negative in May, as uncertainty regarding the length of any recovery and when this would begin reportedly weighed on sentiment.

That said, the degree of pessimism moderated as states loosened lockdown measures.

As firms sought to bolster new orders amid challenging demand conditions, they lowered their selling prices for the third month running in May.

Downward pressure on prices charged was aided by another monthly decline in cost burdens.

The reduction in input prices was reportedly linked to weaker demand for materials.

Lower wage costs and oil prices were also highlighted.

Reflecting weak demand conditions, service sector firms reduced their staffing numbers at a significant rate in May.

The rate of job shedding was faster than any other seen before April, as lower new business inflows led to greater excess capacity.

Another monthly slump in total sales also drove a further depletion in outstanding business.

The fall was steep as firms worked through previously held orders.

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