After a year of fits and starts, the U.S. economy may finally be poised for growth—even in some of the industries most ravaged by the COVID-19 pandemic.
In April, the Institute of Supply Management (ISM) reported an all-time high in its services index, reflecting boldly positive outlooks among the business sectors that represent nearly 90% of the economy.
"Talking to our business owner clients around my territory, I'm hearing that revenues are up and they're hiring," said Bruce Guest, a BOK Financial® regional business banking manager who covers Oklahoma, Colorado and Arizona. "In general, we're seeing a big push to get ducks in a row because the economy's improving."
Signs of growth
The ISM services index covers 18 non-manufacturing industries, ranging from mining and agriculture, to accommodations/lodging and food services, as well as professional, scientific and technical services. All but one sector—the catch-all "other"—posted increases in March over February and the cumulative business activity index reached 69.4.
Any reading over 50 in the index, which is based on monthly surveys of purchasing and supply executives nationwide, reflects expectations for growth.
"There's definitely a sense of optimism out there—that people do believe that we're on the backside of this," said Wyatt Dickson, a BOK Financial regional business manager who covers Texas, New Mexico and Kansas City. "That's giving owners the confidence to make larger investments in equipment and begin to re-staff to pre-pandemic levels."
The ISM report validated Dickson's observations, reporting that its national new orders index also hit an all-time high in March. The measure jumped to a 67.2 reading in March as almost 40% of respondents reported higher levels of orders on a month-over-month basis.
Guest added that he's heard of numerous plans for building expansions. Many savvy companies have the luxury of healthy cash reserves, so they need minimal financing, he added.
Lingering clouds
Amid all of the encouraging news, the ISM report also said that more companies acknowledged paying higher prices in March than in February. Inflation isn't necessarily bad, as it's usually a byproduct of increased economic activity, but it definitely could become a larger factor if things ramp up too quickly.
"Depending on the industry you're in, increasing prices on raw materials are concerning," Guest said.
Across his territory, Guest also said that labor shortages could tamp down growth. Notably, some restaurants are limiting hours of operation because they're short-staffed.
"Especially for tourist-reliant states like Arizona and Colorado, the good news is that customers are coming back, but the bad news is the owners can't hire staff," he said.
Rewarding resilience
While allowing for the potential risks, Dickson said some companies are even better poised for the recovery due to choices they made to survive the downturn.
For example, a Houston-based coffee company took an immediate hit as its restaurant-heavy client base essentially went dark in March and April 2020. After qualifying for Paycheck Protection Program funds, the management team reconfigured its business plan and started selling into areas with more sustained demand, such as grocery stores. The company also launched a direct-to-consumer model.
The maneuver smoothed out the 2020 turbulence and has provided a broader client base as the coffee roaster's previous restaurant customers come back on premise.
"They're now better diversified than before, but it was an expansion they might not have explored if they weren't forced into it," Dickson said. "Tough times reveal character, and I saw some impressive management there, and with other customers too.
"It's truly rewarding now because it's fun to see people getting back to their everyday lives, vaccinated and feeling more optimistic—it's improved everybody's mood and outlook."
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