June 23, 2020 / 1:56 PM / 14 days ago

U.S. business sector contraction eases in June

WASHINGTON (Reuters) - U.S. business activity contracted for a fifth straight month in June, but the pace of decline eased, supporting views that the recession caused by the COVID-19 crisis was drawing to an end.

Data firm IHS Markit said on Tuesday its flash U.S. Composite Output Index, which tracks the manufacturing and services sectors, rose to a reading of 46.8 last month from 37 in May. A reading below 50 indicates contraction in private sector output. The economy slipped into recession in February.

The improvement this month came as businesses reopened after shuttering in mid-March to control the spread of the respiratory illness. Still, layoffs continued this month and businesses put a freeze on hiring to deal with weak demand and to cut costs.

The IHS Markit survey’s flash Purchasing Managers Index for the services sector rose to 46.7 in June from 37.5 in the prior month. Economists polled by Reuters had forecast a reading of 46.0 in June for the services sector, which accounts for roughly two-thirds of the U.S. economy.

In the manufacturing sector, the contraction in activity slowed this month, with the flash manufacturing PMI increasing to 49.6 from a reading of 39.8 in May. Economists had forecast the index for the sector, which accounts for 11% of the economy, rising to 47.8 in June.

A measure of new orders received by factories increased to a reading of 49.5 in June from 34.6 in May.

Businesses reported increases in both input and output prices for the first time since February. According to IHS Markit, “firms stated that higher input costs from suppliers due to COVID-19 related supply chain issues were partially passed on to clients, with some mentioning that demand conditions were such that discounting was no longer required.”

Reporting by Luciz Mutikani, Editing by Chizu Nomiyama

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