Rate of decline of U.S. private sector business activity slows markedly in June - IHS Markit's survey

Preliminary data released by IHS Markit on Tuesday pointed to a notable slowdown in the rate of contraction of the U.S. business activity in June, as businesses began to reopen on a larger scale.

According to the report, the Markit flash manufacturing purchasing manager's index (PMI) came in at 49.6 in June, up from 39.8 in May, pointing to only a fractional deterioration in operating conditions. Economists had expected the reading to increase to 48. A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. According to the report, noticeable softening in the pace of overall decline largely stemmed from significantly slower drops in output and new orders. Although still signaling contractions, rates of decrease were their slowest since before the escalation of the pandemic.

Meanwhile, the Markit flash services purchasing manager's index (PMI) rose to 46.7 in June from 37.5 in the prior month, pointing to the weakest contraction in services activities in four months, as increasing numbers of service providers returned to work. Economists had expected the reading to rise to 46.5. According to the report, the slower decline in activity was commonly linked to only a marginal decrease in new orders.

Overall, IHS Markit Flash U.S. Composite PMI Output Index came in at 46.8 in June, up from 37.0 in May, indicating that the rate of contraction slowed further from April’s record low. The decline was the softest since February, before the pandemic escalated.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at HIS Markit, noted: “The flash PMI data showed the US economic downturn abating markedly in June. The second quarter started with an alarming rate of collapse but output and jobs are now falling at far more modest rates in both the manufacturing and service sectors. The improvement will fuel hopes that the economy can return to growth in the third quarter.”