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The ISM non-manufacturing survey fell 4.8 points to 52.5 in March, still above contraction territory and beating the expected result of 43.5. The measure of business activity fell 9.8 points to 48, marking the first contraction since 2009 during the tail end of the Great Recession. The contraction is due to the impact of the coronavirus pandemic which has shut down large portions of the US economy, resulting in approximately ten million people out of work so far.

Key Takeaways

• Business activity dropped below 50 points and contracted for the first time since the 2009 recession.
• The new orders Index dropped to 52.9 from 63.1, the employment index fell to 47 from 55.6 and the prices paid index edged lower to 50 from 50.8.
• It’s possible that early responses to the survey did not capture the severity of the coronavirus pandemic’s impact on the economy, which greatly escalated over the past two weeks.

Production fell 9.8 points to 48, in contraction with many businesses shut down nationwide due to the coronavirus pandemic. New orders fell from 63.1 to 52.9, and employment dropped from 55.6 to 47.0. Supplier deliveries rose 10.3 points to 62.1, and prices ticked downward 0.8 points to 50. The backlog of orders rose slightly to 55.0 from 53.2. New export orders, imports, and inventory sentiment all slipped below 50 to contraction territory in March.

The report stated “The non-manufacturing sector composite index indicates growth in March; however, the extreme slowing of supplier deliveries weighted heavily in the calculation. The other three subindices that contribute to the NMI® contracted strongly in March. Respondents are concerned about the coronavirus impact on the supply chain, operational capacity, human resources and finances, as well as the ramifications for the overall economy."

Headline ISM non-manufacturing NMI fell back to 52.5 but still positive. Looking at the details, #business #activity, #employment, #inventories, #export #orders, and #imports all contracted. This #recession started in #services but is spreading to the #goods #sectors. pic.twitter.com/8CDSAyPPMO

— Dr Thomas Kevin Swift (@DrTKSwift) April 3, 2020

Impact on Individual Industries

Nine non-manufacturing industries grew in March, led by health care and social assistance, real estate, rental and leasing, public administration, utilities, finance and insurance, construction, management of companies and support services, wholesale trade, and information. Many of these industries may have grown due to the impact of the coronavirus pandemic, resulting in increased need for health care, more demand for utilities with people staying at home, more insurance claims and applications with people out of work or unsure about the future.

Seven industries declined in March, namely arts, recreation and entertainment, transportation and warehousing, professional, scientific, and technical services, mining, other services, retail trade, and educational services listed in that order.

Expert Outlook

Respondents from the healthcare and social assistance industry stated that “significant shortages of personal protective equipment (PPE), chemical reagents, test swabs and other basic medical supplies persist. Extreme sourcing measures are required to procure necessary supplies for basic operations. Distributor allocations continue across the board."

A public administration respondent commented on the “severe impact to operations as a result of COVID-19. Major challenges in obtaining needed supplies for first responders, including N95 masks, gowns, disinfecting products and medical supplies. As a local government, we are experiencing a significant increase in activity due to emergency-response efforts,” adding that they were beginning to experience price gouging for items in short supply.

On the other hand, respondents from the construction industry stated "the coronavirus is having an impact, but not as much as we thought it would at this point. All sectors are staying busy. Although there are many customer concerns, we are finding work-a rounds and adapting to the ever-changing situation."

Market Response

Gold prices have seen remained volatile following news earlier in the session that the US labor market has entered a collapse, cutting over 700,000 jobs in early March.  Spot gold last traded at $16,14.05/oz, down -0.72% with a high of $1,620.52/oz and a low of $1,608.38/oz.

Katherine Judge of CIBC Economics stated that the worst is yet to come.

 "With social distancing and other virus containment measures tightening significantly throughout the month, it is possible that earlier responses to the survey did not capture the full extent of virus containment measures in place by the end of the month," she said. "With those containment measures only likely to get stricter in the near term, activity in the services side of the economy is poised to fall sharply ahead, with our forecast for an unprecedented drop in real GDP of around 30% annualized in Q2 a reflection of that.”