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On the radar: Five District Bank surveys of service sector point to less contraction in June, but still in recession

The five District Bank surveys of the service sector in June showed overall conditions remained weak. What signs of expansion there were only tentative. While reopening of businesses with face-to-face interactions helped bring some workers back on payrolls and improved revenues, the situation is fraught. Recent spikes in COVID-19 rates – particularly in those regions that may have reopened some activity too soon and/or where the public did not adhere to precautions to prevent disease spread – could easily result in reimposition of restrictions on activity. Hospitality businesses in particular could be forced to shutter once again just as the annual summer vacation season gets into full swing.

The average of the headline indexes for the five surveys was up to -13.3 in June from -51.0 in May. This was consistent with a significant lift for activity in the month, but still left the sector in contractionary territory. The correlation with the ISM Non-Manufacturing Index is solid (0.850) and points to a firming in the national index from the 45.4 in May, but probably not enough to bring it up to the 50-mark that would mean renewed expansion for the service sector. I would look for it to perhaps reach 48.0. This would be just below where the ISM says it signals recession for the overall economy.

The June ISM Non-Manufacturing Index will be released on Monday, July 6 at 10:00 ET.

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