This time around, it might just be that the non-manufacturing PMIs are more important than the manufacturing ones. The coronavirus pandemic has affected the whole economy, of course.
However, retailers bore the brunt of the economic impact. Even now many stores either remain closed, have restricted opening hours, or have safety requirements that many customers say are discouraging them from shopping.
Manufactured goods need to be sold, and the US remains the largest consumer market in the world.
Even with better manufacturing data, we shouldn’t expect much of a swing towards optimism in the market unless consumers are back. If services companies are not seeing a surge in sales, they won’t be buying more inventory.
ISM vs Markit: Why the Divergence?
Later we have Markit PMI and NMI being released one after the other in a fifteen-minute interval.
Both survey the outlook of purchasing managers of US firms. Presumably, they should have similar readings. But the latest data show that they are diverging. ISM is pushing well into expansion, while the Markit survey is still in contraction. Why?
One difference is the number of firms surveyed. Markit sends their questionnaire to around 800 firms of different sizes, seeking to represent the broader market. ISM, on the other hand, surveys only it’s members, which are a smaller number of larger companies.
The second difference is that Markit asks specifically for the domestic situation of the businesses, that is just their US operations.
ISM asks about the situation for the company as a whole. This includes US-based businesses that have a majority of their operations overseas, for example, in China.
What We Are Looking For
As mentioned, projections are for Markit Services PMI to show contraction in July. This would repeat the flash number of 49.6, compared to 47.9 in June. An improvement, and only technically in contraction.
Let’s remember that analysts had projected it to bump up to 54.0. Therefore, it’s certainly possible for there to be a revision that will put the number back into growth. Projections are for the composite PMI to once again straddle growth and contraction at exactly 50.0.
ISM Non-Manufacturing Index is projected to push substantially into expansion at 57.1 compared to 55 in June. It would be normal for NMI to push significantly above pre-recession levels during a recovery, as more and more businesses have optimism sales will return.
How About Currency Impact?
Expectations are for ISM New Orders to slip a bit to 61.6 compared to 64.7 prior. New orders are important because they show that businesses are buying.
This is either because they are having good sales or have reason to believe they will have them soon. More than anything, this figure is likely to push risk sentiment.
The higher it is, the more appetite for risk, and the weaker the dollar.