COVID-19’s Devastating Impact on Manufacturing

Economic activity in the non-manufacturing sector saw a dramatic decline in April for the first time since December 2009, ending a 122-month period of growth, say the nation’s purchasing and supply executives in the latest Report on Business from Non-Manufacturing ISM.

The report was issued this week by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM. He is the chair of the Institute for Supply Management (ISM) Non-Manufacturing Business Survey Committee. He said in a statement that the NMI registered “41.8 percent, 10.7 percentage points lower than the March reading of 52.5 percent. This reading represents contraction in the non-manufacturing sector and is the NMI’s lowest since March 2009 (40.1 percent). The Business Activity Index fell 22 percentage points from March’s figure, registering 26 percent — the lowest reading for that index since the debut of the Non-Manufacturing ISM Report On Business in 1997. The New Orders Index registered 32.9 percent, 20 percentage points below the reading of 52.9 percent in March. The Employment Index decreased to 30 percent, 17 percentage points below the March reading of 47 percent.

“The Supplier Deliveries Index registered an all-time high of 78.3 percent, up 16.2 percentage points from the March reading of 62.1 percent, which limited the decrease in the composite NMI. The Supplier Deliveries Index is one of four equally weighted subindexes that directly factor into the NMI^®, along with Business Activity, New Orders and Employment. Supplier Deliveries is the only ISM Report On Business^® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases. However, the combined 25.9-percentage point increase in March and April was primarily a product of supply problems related to the coronavirus (COVID-19) pandemic.

“The Prices Index figure of 55.1 percent is 5.1 percentage points higher than the March reading of 50 percent, indicating that prices increased in April. According to the NMI, two non-manufacturing industries reported growth. The non-manufacturing sector composite index indicated contraction for the first time since December 2009, when the NMI was at 49.7 percent. Respondents are concerned about the continuing coronavirus impacts on the supply chain, operational capacity, human resources and finances, as well as the uncertain timelines for the resumption of business and a return to normality.”

INDUSTRY PERFORMANCE
Although it is difficult to find any areas of growth, there are two non-manufacturing industries reporting growth in April. The report says that “hose are: Public Administration; and Finance & Insurance. The 16 industries reporting a decrease in April — listed in order — are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Other Services; Wholesale Trade; Construction; Transportation & Warehousing; Mining; Professional, Scientific & Technical Services; Information; Accommodation & Food Services; Management of Companies & Support Services; Educational Services; Real Estate, Rental & Leasing; Utilities; and Health Care & Social Assistance.”

WHAT RESPONDENTS ARE SAYING

• “General uncertainty over ramp-up timeline post COVID-19.” (Accommodation & Food Services)
• “The COVID-19 situation has created significant challenges for the agricultural sectors. Milk prices have declined 29 percent in a few weeks. Milk is being dumped on farms because of the loss of markets. Cattle prices are down 28 percent, pork prices down 24 percent, [and] all agriculture sectors are facing significant price declines. Our agriculture economy is challenged with poultry, pork, and beef processing plants closed due to COVID-19 cases or impaired due to employees afraid to work side-by-side with other employees. Farmers cannot sell fat cattle locally due to processing plant shutdowns.” (Agriculture, Forestry, Fishing & Hunting)
• “COVID-19 pandemic has forced our business to close as of March 17, 2020. We do not have a re-opening date yet; our purchasing activity has been greatly reduced due to the current business environment.” (Arts, Entertainment & Recreation)
• “COVID-19 is altering the operation, supply chain and sales process of home-building. Stay-at-home orders have hampered business in residential construction. As ours has been deemed an essential industry, we continue to navigate changing guidelines and restrictions on a daily basis.” (Construction)
• “The university abruptly transitioned from students on campus to remote teaching for the spring quarter; however, the number of students registered for the quarter has remained consistent with previous years. Overall, activity dropped 17 percent compared to February and 31 percent compared to March 2019.” (Educational Services)
• “Due to increased loans from [the federal] stimulus package, [we are] seeing an increase in new business.” (Finance & Insurance)
• “COVID-19 has halted much of our standard work to procure items for our organization. It’s halted much of the world, except for health care. Distributors were woefully unprepared for the spread of this pandemic, and many health-care systems/providers depend on them for inventory planning and availability. Combine that with the global [surgical] gown recall just before the pandemic struck — and isolation masks are created from the same material as isolation gowns — and you had a perfect storm for chaos across the supply chain. It will be very hard for major medical distributors who did not manage their core customers well to recover from both the gown recall and the pandemic. It also provided some insight into whether or not the distributor partners were actually skilled at inventory planning and movement. I believe that the healthcare supply chain landscape will change dramatically after this.” (Health Care & Social Assistance)
• “The oil exploration sector is very weak, with the record low price of oil and the country’s shutdown due to the COVID-19 threat. We are hopeful for a bump in activity once the country starts to reopen.” (Management of Companies & Support Services)
• “New challenges working from home and getting inventory to the retail locations.” (Retail Trade)
• “As an essential business, we have remained open during the month. A significant number of our customers are closed (i.e. schools) and other have substantially reduced their buying (i.e. hotels, office building). Sales of janitorial, sanitation, and paper products [have] increased across all business lines, but other categories are greatly reduced. Overall, reduction in sales of 20 percent to 30 percent.” (Wholesale Trade)

NOTES FROM THE STUDY:

*Non-Manufacturing ISM Report On Business data is seasonally adjusted for the Business Activity, New Orders, Prices and Employment indexes. Manufacturing ISM Report On Business^®data is seasonally adjusted for New Orders, Production, Employment and Inventory indexes.
**Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE, AND IN SHORT SUPPLY

Commodities Up in Price
Air Freight; Cleaning Products (2); Disinfectants; Gloves (2); Hand Sanitizer (2); Isopropyl Alcohol; Janitorial Supplies; Medical Services; Medical Supplies (3); Personal Protective Equipment (PPE) (3); PPE — Masks (2); Surgical Gowns (2); and Ventilators.

Commodities Down in Price
Cheese; Diesel Fuel (4); Fuel (2); Gasoline (3); Pork; and Steel Products (2).

Commodities in Short Supply
Alcohol; Cleaning Products (2); Cleaning Supplies (2); Computer Hardware; Disinfectants (2); Face Shields; Gloves; Hand Sanitizer (2); Janitorial Supplies; Labor — Construction; Labor — Temporary (10); Medical Supplies (3); Nasal Swabs; N95 Masks (2); Paper Products (2); Personal Protective Equipment (PPE) (3); PPE — Coveralls (2); PPE — Gowns; PPE — Masks (2); Surgical Masks (3); Safety Equipment; Sanitary Supplies; Toilet Paper (2); and Viral Transport Media.

Note: The number of consecutive months the commodity is listed is indicated after each item.