What Do The Latest PMI Surveys Suggest About The State Of The Economy?

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On the latest edition of Market Week in Review, Senior Portfolio Manager Megan Roach and Head of AIS Business Solutions Sophie Antal Gilbert discussed the latest economic data and the ongoing global response to the coronavirus pandemic, as well as recent equity market performance.

New PMI data indicates slowing rate of contraction

Weekly jobless claims in the U.S. for the week ending May 16 totaled 2.4 million, Roach said, bringing the total number of jobless applications filed since mid-March to approximately 39 million. While staggering in scope, she noted that the weekly number of claims filed has steadily dropped over the past several weeks, after peaking at nearly 7 million in late March.

Meanwhile, IHS Markit’s flash PMI (purchasing managers’ index) surveys for May rose slightly in the U.S., an indication that while the nation’s economy is still in pretty bad shape, it might be in slightly less bad shape than in April. For instance, May’s preliminary manufacturing PMI came in at 39—up from 36 in April—while the U.S. services PMI jumped from 26 to 37, Roach said. Meanwhile, in Europe, the eurozone composite PMI climbed to a reading near 30 in May—up from April’s record low of 13.6.

“Granted, any number below 50 indicates contractionary conditions—in other words, that things are worsening. However, the rate of contraction in both the services and manufacturing sectors appears to have slowed a bit from April,” Roach explained.

As to whether or not the improvement in PMI readings may signal the start of a trend, she said it largely hinges on the progression of economic reopenings around the world. Countries are currently laser-focused on how quickly and safely they can bring individuals back to work, Roach said, noting that in the U.S., a large portion of the job losses are considered to be temporary.

“In my opinion, economic progress will continue to be tied to individuals returning to work, as well as to the percentage of job losses that turn out to be temporary, as opposed to permanent,” she stated. This is why, Roach said, there’s been such a strong motivation globally to reopen battered industries like restaurants, auto manufacturing, tourism and casinos—even in a limited capacity.

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