The United States, and the rest of the world, are looking to emerge from the shadow of COVID-19, and business conditions may already have put the pandemic in the rear-view mirror—at least according to the monthly business surveys conducted by the Institute of Supply Management (ISM). The ISM Manufacturing PMI surged to 64.7 in March versus 60.8 a month prior (index levels above 50 indicate expansion) and above all but one of the Bloomberg consensus survey estimates.
Meanwhile, increasing vaccinations and further easing of restrictions—including the full reopening of several states—buoyed a rebound off a nine-month low for the ISM Services PMI to 63.7, a level above every economist estimate in the Bloomberg consensus survey.
As shown in the LPL Chart of the Day, both index levels are now at their highest of the 21st century, with the ISM Services PMI setting an all-time record for the index:
“Risks to the recovery presented by COVID-19 will remain present so long as other developed nations are battling the virus, but business leaders are clearly expecting business conditions to improve in the U.S.,” added LPL Financial Chief Market Strategist Ryan Detrick. “The vaccination program in the U.S. has of course been a major catalyst, helping us further our reopening plans and getting us that much closer to normal.”
According to the CDC as of April 6, nearly a third of the total US population has received at least one dose of the vaccine, and nearly a fifth of the population is fully vaccinated. Meanwhile, over 75% of the population over the age of 65—the most at-risk population segment—has received at least one dose of the vaccine while over 50% are fully vaccinated.
The nature of the pandemic has caused goods-based industries to fare better than services, but the recent success of vaccination efforts has been a shot in the arm to service industries—literally. The ISM Services PMI covers 18 industries that comprise roughly 90% of the U.S. economy, and all 18 reported growth in March, fueling considerable gains in the labor market in the process.
The nonfarm payrolls report showed the U.S. economy added 916,000 in March, trouncing the Bloomberg consensus of 650,000. Most notably, the segments of the labor market most dependent on in-person interaction saw the greatest gains, where nearly a third of the 916,000 total jobs added came from the leisure and hospitality industry.
The trifecta of rising vaccinations, fiscal stimulus, and easing restrictions across the country should continue to help unleash pent-up demand in the U.S., and we suspect the rest of the world—most notably Europe—will see similar improvement as the battle against COVID-19 continues. In our view, the improving economic backdrop is supportive of stocks and other risk assets, and reinforces our “risk on” portfolio positioning recommendation.
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