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MNI (Washington)

The U.S. service sector should show continued strength through the remainder of the Covid-19-led recession, the chair of the Institute for Supply Management's monthly services survey told MNI Thursday, rejecting the possibility of a double-dip recession despite a slowdown in services growth last month.

"All signs indicate that unless we have a derailment in the next few months that we'll continue to see this growth going forward," Anthony Nieves said in an interview.

Many service-sector businesses are seeing an uptick in demand as coronavirus-related restrictions are lifted in most states and aren't relying on federal aid as heavily as they were at the onset of the pandemic when nearly all businesses deemed "nonessential" were forced to close, he said.

Still, Nieves acknowledged that overall hiring remains subdued and many smaller firms won't come out the other side without more fiscal support from the government.

"Smaller businesses won't recover from this," he said, singling out the restaurant industry, whose fatality rate is extremely high even in times of relative economic stability. "Certain companies will need additional stimulus to get them past what they've been experiencing these last several months."

Nieves said the Paycheck Protection Program created as part of the USD2.2 trillion CARES Act helped many small service-sector businesses stay afloat through the summer, but the program wasn't designed to supplement upwards of six months of limited cash flow. Even another round of payments may not be enough to save some of these businesses.


Hiring in the service industry still has "a ways to go," Nieves said, and will depend almost entirely on the degree to which businesses can open and operate.

The U.S. reopening process thus far has been disjointed, with individual states and even counties enforcing their own sets of Covid-19 restrictions largely correlated to unique population density and infection rates. Some regions will bring jobs back to the service sector more quickly than others.

Nieves said many service workers likely prioritized their health and opted to stay home while an extra weekly USD600 on top of regular state benefits was available to them. That program, authorized under the CARES Act signed in March, expired at the end of July.

"A lot of people were staying home because they were able to stay cost-neutral with federal aid," he said. Now that government cash offered in the spring has mostly dried up, "people need to go back to work."

The ISM Services Index dropped 1.2 points to 56.9 in August, marking the third consecutive month of growth after plunging into contraction at the onset of the Covid-19 pandemic. Markets had expected 57.0. The business activity sub-index fell 4.8 points to 62.4, while the employment index grew to 47.9 in August from 41.2 in July, though still signaling contraction. A reading above 50 indicates expansion.
MNI Washington Bureau | +1 202-371-2121 |
MNI Washington Bureau | +1 202-371-2121 |

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