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The Markit manufacturing PMI dropped to 36.9 in April, down from 48.5 the month before and below expectations of 38. The services PMI sunk even further from 39.8 to 27, indicating greatly reduced activity in both sectors. Markit’s chief business economist Chris Williamson stated that April saw the coronavirus deal “a blow to the US economy of a ferocity not previously seen in recent history.”

Key Takeaways

• The manufacturing PMI sunk from 48.5 to 36.9 vs. 38 expected in April.
• The services PMI dropped from 39.8 to 27 and the composite PMI fell from 40.9 to 27.4.
• The news follows a report of 4.27 million additional layoffs in the US with an expected unemployment rate of 20% in two months.

The US labor market has suffered from the nationwide lockdowns in place shutting down businesses in most sectors. 26 million people have lost filed for unemployment benefits in the last 5 weeks. Approximately one in five working Americans have now lost their jobs since the middle of March, an unprecedented catastrophe for US labor and the economy in general. While economists believe that this crisis may be more short-lived than previous economic downturns, the impact on the economy is staggering.

US economic sentiment collapses, falling below 2008 crisis levels, according to the Composite PMI for April. The implication: Q2 "will see an historically dramatic
contraction of the economy," predicts IHS Markit's chief business economist: https://t.co/WVd44R4Skf pic.twitter.com/yF9ZIZxLVj

— James Picerno (@jpicerno) April 23, 2020

While layoffs have likely peaked, millions more are expected to lose their jobs in the coming weeks and months, with unemployment on course for 20% by June.

Services

The services sector has been hit particularly hard, with many service-related businesses considered non-essential. Services contracted at the fastest rate since the beginning of records in late 2009, and new business also saw a record drop due to lockdowns and public health measures. Foreign client demand has also fallen in the service industry due to the coronavirus pandemic. The outlook for business activity hit an all-time low in services. Efforts to attract new clients also saw the sharpest drop in recorded history, and service providers cut staff levels at a faster pace than March.

Manufacturing

Manufacturing plants have been shut down in some areas, as well as severely affected by the global disruption to supply chains as a result of the coronavirus pandemic. Manufacturers reported the fastest decline in operating conditions in 11 years.

Manufacturing backlogs were smaller despite staff cutbacks due to the drop in new orders. Input costs and gate charges also saw the fastest drop in over a decade due to low demand, which resulted in cut prices by both manufacturers and suppliers.

Survey respondents forecast a further major decline in business outlook in the months ahead. Business confidence turned negative in April for the first time in the survey’s 8-year history.

Expert Outlook

Chris Williamson, chief business economist at IHS Markit, stated “the COVID-19 outbreak dealt a blow to the US economy of a ferocity not previously seen in recent history during April. The deterioration in the flash PMI numbers indicates a rate of contraction exceeding that seen even at the height of the global financial crisis, with jobs also being slashed at a rate far exceeding anything previously recorded by the survey."

He added that “The scale of the fall in the PMI adds to signs that the second quarter will see an historically dramatic contraction of the economy, and will add to worries about the ultimate cost of the fight against the pandemic.”

Market Reaction

Gold prices have seen strong upward momentum in today’s session. Spot gold last traded at $1,737.05/oz, up 1.47% with a high of $1,737.21/oz and a low of $1,708.92/oz. Crude oil prices have recovered from the unprecedented collapse and backwardation seen earlier in the week, a result of the oil price war between Saudi Arabia and Russia amid declining demand for oil and transport. Crude oil and gold prices are linked as safe haven assets, and the recovery adds to the already-bullish conditions for gold emerging from the increasingly dire economic situation in the US as well as worldwide.