oil barrel prices
Suppliers' deliveries to manufacturers was slower in May due to plant shutdowns, transportation challenges and importing difficulties.
Jordan, Knauff & Company

The Jordan Knauff & Company (JKC) Valve Stock Index was down 16.3 percent over the last 12 months, while the broader S&P 500 Index was up 10.9 percent. The JKC Pump Stock Index fell 10.0 percent for the same time period. 1

The Institute for Supply Management’s Purchasing Managers’ Index (PMI) registered 43.1 percent in May, up 1.6 percentage points from the April reading of 41.5 percent. The performance of the various subcomponents is encouraging.

Stock Chart July 2020
IMAGE 1: Stock indices from June 1, 2019 to May 31, 2020 (Images courtesy of Jordan, Knauff & Company)

The New Orders Index registered 31.8 percent, an increase of 4.7 percentage points; the Production Index was 33.2 percent, up 5.7 percentage points; the Employment Index registered 32.1 percent, an increase of 4.6 percentage points; and the New Export Orders Index registered 39.5 percent, an increase of 4.2 percentage points compared to April.

The delivery performance of suppliers to manufacturing organizations was slower in May, as the Supplier Deliveries Index registered 68 percent, 8 percentage points lower than the 76 percent reported in April. A reading above 50 percent indicates slower deliveries.

Suppliers continue to be impacted by plant shutdowns, transportation challenges and the continuing difficulty in importing parts and components. This measure is still quite high at 68, but is the first decline in this component since October 2019.

rig counts July 2020
IMAGE 2: U.S. energy consumption and rig counts

In its second estimate of U.S. gross domestic product (GDP), the Bureau of Economic Analysis reported real GDP declined at an annualized rate of 5.0 percent in the first quarter of 2020, slightly worse than the original estimate of a 4.8 percent decline. The new data includes pre-tax corporate profits which declined $295 billion, or 13.9 percent, the largest drop since the fourth quarter of 2008. On a year-ago basis, profits were down 8.5 percent. Weak U.S. production and personal consumption weighed on corporate profitability.

The number of active oil and natural gas drilling rigs fell 56 percent between March 17 and May 12 reaching 339 rigs, the lowest level in Baker Hughes Company’s rig count data series dating back to 1987. Changes in the number of oil rigs have historically followed changes in oil prices with a lag time of about four months. However, the current quick reduction in active rigs reflects the sudden loss of petroleum demand related to the coronavirus-related economic shutdown.

Rig counts have also fallen in natural gas-focused areas, although those areas had fewer rigs. Drilling rigs in the Marcellus and Haynesville regions, which are exclusively natural gas rigs, declined by 23 percent and 26 percent respectively, from mid-March to May 12.

pmi shipments July 2020
IMAGE 3: U.S. PMI shipments and manufacturers' index.

On Wall Street, the Dow Jones Industrial Average rose 4.3 percent, the S&P 500 Index gained 4.5 percent while the NASDAQ Composite rose 6.8 percent for the month of May. The markets were optimistic over the easing of lockdowns nationwide and the historic stimulus efforts by the Federal Reserve Bank and other international central banks. However, U.S. consumer spending showed a record drop for the second straight month.

1. The S&P return figures are provided by Capital IQ