In yet another sign that the economy is still fluctuating because of the COVID-19 pandemic, data firm IHS Markit released a report that revealed that overall business activity in the United States cooled down in July. For a second straight month now, business activity has slowed down, though activity is still growing. However, compared to the huge surge in activity during the first quarter, this cooling down for the last few months is notable.
According to IHS Markit, the U.S. Composite PMI Output Index fell to a reading of 59.7. In June, it was 63.7. This is the lowest reading seen in four months. Normally, any reading that is 50 and over suggests there is growth in the private sector of the United States.
There are many reasons for this cooling down of business activity. It’s also not necessarily a huge surprise to economists, even if it is notable. Many economics forecasted that the second quarter would see a slowing down of activity, especially when compared to the first quarter.
This decrease in business activity is more than likely for a lot of reasons. Businesses around the nation are still dealing with massive labor and raw material shortages that have left them struggling to meet high consumer demand. These shortages have also forced many businesses to increase their prices, which may have resulted in customers turning away, or not buying their goods or services.
Many businesses have also struggled with keeping stock of necessary items, or of increasing their inventory, for the past few months. This may have also resulted in slowed-down business activity for many.
Finally, recent COVID-19 concerns have made many question what the future may hold for business activity. The recent Delta variant of the virus has caused a surge in infections worldwide, and in the United States. While most economists don’t foresee another lockdown or economic closure in the country like we saw in 2020 when the pandemic first started, the Delta variant could continue to affect business negatively.
Customers, wary of the growing Delta variant concerns, may have decided to stop spending and instead focus on saving. However, even with these new worries and shortages, the economy doesn’t seem to be completely slowing down any time soon. Households have saved about $2.5 trillion in excess savings for the past year, so there is still a good chance that many will continue to spend money this year and increase business activity, even if the big boost the economy gained from government stimulus checks has subsided.
Therefore, the third quarter still looks very strong to many economists, even if the second quarter slowed down a bit. Many businesses will soon have to deal with the major issues — such as labor and raw material shortages — that they are faced with, though. While some economists hoped these issues would slowly work themselves out as the year progressed, these problems haven’t yet been solved in any major way. To ensure the economy continues to grow for the rest of the year, businesses nationwide may have to continue to work around these issues as best they can.