Business spending showed some signs of green shoots in June, as manufacturers bought more equipment and spending shifted away from stay-at-home sectors to ones that could rebound in a reopening economy, according to Cortera, a software company which analyzes business-to-business credit transactions.
But overall June spending was still depressed, down 10.9% from the same month last year, and up just 2.7 percentage points from the 13.6% decline in May year over year, according to the company.
Cortera said spending by industries that benefit from the work-from-home trend, like internet retailers and food and beverage stores, fell by 6 percentage points in June from May, but is still 1.7% above 2019 levels. Gasoline stations and food and beverage establishments and other sectors that would benefit from reopening spent 7 percentage points more in June than in May, but that is still lower than last year.
Cortera's universe is made up of businesses responsible for $1.6 trillion in spending a year.
"There are green shoots," said Cortera CEO Jim Swift. But he said the comeback in spending is a little softer than he expected because of setbacks and delays in the economic reopening, due to the spreading coronavirus.
"I think the situation is one where we're starting to recover, but it's slower because of the persistence of the virus so people don't go out as much," he said. Swift said a positive in June was the 6 percentage point increase in manufacturing spending and a 15 percentage point jump in spending related to trucking shipments.
"The fact we are seeing some upticks in that is the most encouraging thing. They're starting to get things back out in the market. If we can get the manufacturing guys going that's real growth," he said.
Source: Cortera
Cortera created a reopen index, and nearly all industries that would benefit from the economic reopening increased spending, with the biggest being restaurants, furniture and air transportation. Spending by restaurants was up 18 percentage points from May's depressed level, but it is still down 30.5% from last year.
Source: Cortera
Two-thirds of all of the businesses increased their spending from May to June, and 80% are still spending less than at the same time last year, according to Cortera.
Forty-eight states saw increases in spending from May to June, with small and medium-size businesses recovering at a faster rate than large businesses, up 7 percentage points. However they were harder hit in March and April, and small business spending was still down 10% from last June.
Source: Cortera
Just three states showed a year-over-year increase in business spending, while 34 states saw a positive bounce from May to June. The three were New Hampshire, Idaho and Michigan, which saw a large boost from spending by automotive- and food production-related businesses.
Nine states had increases in spending in reopening industries. They were Delaware, Iowa, Maine, Montana, Minnesota. North Dakota, South Dakota, South Carolina and Wyoming.
Source: Cortera
By sector, the reopening resulted in shifts in the food supply chain, with a decline in food store spending but an increase in restaurant spending. On the other hand, retailers were not spending on apparel and were taking merchandise from inventories, but apparel manufacturers appear to be spending in anticipation of new orders.
Source: Cortera
Cortera said an important measure of the breadth and strength of the economic recovery is found in the spending in four major parts of the supply chain - manufacturing, wholesale, transportation and retail. But only two of those - manufacturing and transportation look to be clearly picking up.
"Spending by manufacturers (+6%) increased in June, signaling improved underlying supply chain strength. Increased purchasing of truckload shipping (+15%) indicates products are starting to move again," according to Cortera. "Purchasing of manufacturing materials (+10%) and equipment (+4%) are increasing, suggesting that production increases are underway."
Manufacturing is seeing an encouraging rebound from a decline of 23% year over year in May. Most of the bounce from May spending was in transportation equipment, up 20 percentage points, amid signs of recovery in automobile and aircraft industries. Petroleum manufacturing continued to decline, off by 12 percentage points in June.
Retailer spending was mixed with the reopening spending increases offset by declines in spending by the work-at-home sectors. Transportation providers saw gains in June, but spending by wholesalers continued to drop.
"The resilience of the transportation industry (along with packaging providers) is an important reason we didn't experience severe product shortages even as the country experienced massive disruptions," Cortera noted.