U.S. Services Businesses See Biggest Drop in Activity Since Last Recession - The Wall Street Journal

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The Institute for Supply Management’s nonmanufacturing index fell in April to the lowest reading since March 2009. Truckers protesting in Washington, D.C., on Friday.

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Gwynn Guilford

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• gwynn.guilford@wsj.com

May 5, 2020 12:49 pm ET

U.S. services businesses saw their steepest drop in activity in April since the last recession as the coronavirus pandemic gained momentum, surveys of purchasing managers showed.

The Institute for Supply Management’s nonmanufacturing index fell to 41.8 in April, down from 52.5 in March and the lowest reading since March 2009. Separately, private data firm IHS Markit said on Tuesday its U.S. services index—a survey-based measure of activity in industries such as finance, hotels and transportation—saw its sharpest one-month decline since the survey began in October 2009, falling to a seasonally adjusted 26.7 in April from 39.8 the prior month.

For both surveys a level above 50 indicates expansion, while a level below 50 signals contraction.

Chris Williamson, chief business economist at IHS Markit, said the survey indicates “the 4.8% rate of economic decline seen in the first quarter will likely be dwarfed by what’s to come in the second quarter.”

The recovery for services businesses will likely be “long and slow,” even as state governments begin easing restrictions on business across the U.S., said Mr. Williamson.

Consumer spending fell 7.5% in March, prompting further concerns about the impact of the coronavirus pandemic on the economy. Here’s why consumer spending is so important and how it can signal if the country is heading toward a recession. Photo: Getty Images

“While manufacturing may see a rebound in production as increasing numbers of factories are allowed to reopen, prospects look bleaker for many parts of the services economy, especially where businesses rely on travel, social gatherings or close contact with customers,” he said.

Anthony Nieves, head of ISM’s services survey committee, said the outlook for recovery in the service sector is unusually unclear.

“And right now we know consumer sentiment is lacking,” Mr. Nieves said. “So we don’t expect or anticipate a V-shaped recovery.”

The ISM’s index for business activity slowed to 26.0 from 48.0 in March, the lowest reading since the index began in 1997. The index for employment dropped to 30.0 in April, from 47.0 the previous month, as all 18 industries tracked reported decreased employment. And new orders sank 20 percentage points to 32.9, the first contraction after 122 months of growth.

The surveys captured an array of economic damage across the services sector in April. The oil exploration sector continued to suffer from a record low in prices. Dairy farmers reported dumping milk as supply chain disruptions sent prices down 29%, while slaughterhouse shutdowns left farmers unable to sell cattle. Respondents from the health-care industry reported “chaos across the supply chain,” as distributors bungled inventory management and transport.

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