Friday 24 July 2020 3:14 pm

US economy: Demand hit by new coronavirus lockdowns

The US’s private sector stabilised in June but demand faltered as states re-imposed lockdowns in response to rising coronavirus cases, survey data has shown.

An early estimate of the IHS Markit purchasing managers’ index – a gauge of the health of the economy – hit a six-month high of 50 as output improved after the worst quarter in living memory.

The score of 50 putatively indicated that the private sector was neither shrinking nor growing and was lower than expectations. However, some economists have said the gauge should not be taken too literally. GDP started growing again in May even when the PMI score was below 50.

Survey respondents linked ongoing economic problems to the reintroduction of lockdown measures and travel restrictions hampering new business from abroad.

The US economy appeared on track for a relatively rapid recovery in June as states reopened. Millions of people unexpectedly returned to or found work in May. The unemployment rate fell rather than rose as economists had predicted.

Coronavirus cases knock US economy

Yet since then the country has suffered a surge in new coronavirus cases. New records have been set for cases consistently in the past few weeks. In response, many states such as economically crucial California have reimposed some lockdown restrictions.

“While the stabilisation of business activity in July is welcome news, the lack of growth is a disappointment,” said Chris Williamson, chief business economist at data firm IHS Markit.

“A renewed acceleration in the rate of loss of new business raises concerns that demand is faltering.”

“Many companies, notably in consumer-facing areas of the service sector, linked falling sales to re-imposed lockdowns.”

Despite this, firms took on more workers in July, according to the survey. They also became more optimistic, with sentiment at its best level since April 2019.

Williamson said: “Hopes are qualified, however, by uncertainty over the coronavirus outbreak and the political environment as November’s election draws closer.”