Markit PMI August Preview: Did the economy improve in August?

The outlook of American business managers is expected to continue its slow recovery from the pandemic lockdown debacle as the economic threat from the second wave of the virus fades from sight.

Purchasing manager’s indexes from the UK firm IHS Markit are forecast to rise to 51.9 in manufacturing and 51.0 in services in August from 50.9 and 50 respectively in July.  The composite index was 50.3 in July.

Index scores from Markit are a relatively recent entry into the American market and they have historically run a few points below those of the Institute for Supply Management (ISM), the US organization that pioneered these surveys more than 50 years ago.

ISM purchasing managers’ indexes

Business sentiment improved sharply in July with the 54.2 overall manufacturing index beating its 53.6 forecast and June’s 52.6 reading for the highest reading since March 2019.  Services did even better reaching 58.1 on a 55 estimate after 57.1 in June for its best level since February 2019.

The new orders indexes in both sectors soared, manufacturing to 61.5 from 56.4 in June,  reversing the pessimistic 46.8 forecast and services to an all-time record at 67.7 from 61.6. 

Service new orders

Employment indexes lagged the general improvement and remained below 50 and in contraction with manufacturing rising to 44.3 from 42.1 in June and services falling to 42.1 from 43.1, far beneath its 51.1 projection.

Initial jobless claims and non-farm payrolls

The 10% rise in claims in the middle of July from 1.307 million on July 10 to 1.435 million on July 24 was assumed to be indicative that the rise in Covid cases that began in June in several large states had curtailed or reversed the US economic recovery. 

Since that brief peak claims have fallen 23% to 1.106 million in the second week of August.

Initial jobless claims

Of the more than 22 million people who lost their jobs in March and April, 9.253 million 42% had been rehired through July.  Payroll gains fell by two-thirds in July to 1.763 million from 4.8 million in June.

The modest 10% rise in initial claims in mid-July was assumed to signal a pull-back in the US recovery.  As a logical proposition should not the much larger 23% drop in August be an indicator that the recovery has strengthened?

Conclusion and markets

The Markit PMI indexes have limited impact in the US equity, credit and currency markets though with the intense focus on the August payroll numbers in two weeks the results may be punching a good deal above their weight.