The U.S. services sector contracted for the first time in about a decade in April 2020. The coronavirus pandemic caused a lot of problems for the U.S. economy. The Institute for Supply Management released its manufacturing index, which highlights the impact of the coronavirus on the economy.
According to the ISM manufacturing index fell to 41.8 in April from 52.5 in March. As a result, the services sector dropped for the first time since December 2009. Moreover, it was the biggest contraction for the sector since March 2009. As a reminder, the previous worst result was 40.
Importantly, April’s sharp decline was the result of the lowest amount of business activity in services. Also, it was the lowest amount of business activity in services since the ISM unveiled the index 1997. Furthermore, a steep drop in new orders also had a negative impact on the ISM manufacturing index.
According to the chair of the Institute for Supply Management, supply problems connected with the coronavirus was the primary reason. Moreover, Anthony Nieves underlined the issues regarding the supply chain as well as operational capacity, human resources, etc.
States across the country implemented stay-at-home orders and made to close nonessential businesses. As a result, millions of Americans from California to New York lost their jobs. Many of them already applied for the unemployment benefits.
According to the data provided by the Labor Department, the U.S. gross domestic product (GDP) shrank by 4.8% in the first quarter of 2020.
Services sector and Federal Reserve
As can be seen from the data mentioned above it was a tough month for the U.S. services sector. The coronavirus pandemic created a lot of challenges for the economy. Nevertheless, the Vice Chairman of the Federal Reserve said that the U.S. economy can return to positive growth in the third quarter of 2020.
According to Richard Clarida, thanks to their policies the economy will get back on track. Moreover, he discussed the ongoing situation and severity of the problem.
Also, Clarida promised that the Federal Reserve will continue to provide whatever support is necessary to help markets as well as the economy. The Federal Reserve is ready to do whatever it takes to improve the situation.
It makes sense as the economy suffered the biggest losses since the Great Depression. The services sector declined for the first time since 2009. The ISM manufacturing index showed that the state of the U.S. economy is far from being ideal. As a result, private and governmental organizations should work harder to support the world’s largest economy.