Service sector confidence reacts positively for second month, after strong declines at start of pandemic

ICS increased in all 13 surveyed segments, and there was a reasonable but even smaller improvement in assessments of the current moment and a consistent further improvement in expectations related to the coming months
Economics
01 July 2020
Service sector confidence reacts positively for second month, after strong declines at start of pandemic

Fundação Getulio Vargas’ Services Confidence Index (ICS) rose 11.2 points in June, to 71.7 points. Despite having increased 20.6 points in the last two months, the index has only recovered 48% of its losses in March and April of this year.

“Service sector confidence has reacted positively for the second month in a row, after strong declines at the start of the pandemic. However, despite the significant rise in June, caution is needed, because the basis for comparison is very low. Another point to be considered is the dynamics of this recovery, still mainly influenced by improving expectations about the next few months. The worst moment seems to be behind us, but high uncertainty means we cannot guarantee a continued recovery,” said FGV IBRE economist Rodolpho Tobler.

ICS increased in all 13 surveyed segments, and there was a reasonable but even smaller improvement in assessments of the current moment and a consistent further improvement in expectations related to the coming months. The Current Situation Index (ISA-S) rose 7.0 points, to 64.0 points, but as we reach the middle of the year, it is still down 28.9 points in 2020. The Expectations Index (IE-S) went up 15.1 points, to 79.8 points. Despite rising 32.5 points in total in May and June, this was not enough to return to the pre-pandemic level.

The service sector’s Installed Capacity Utilization Level (NUCI) fell 0.8 percentage points, to 77.2%, reaching a new all-time low since records began in April 2013. However, this month’s decline was smaller than in April (-3.5 p.p.) and May (-1.5 p.p.)

Although the level of confidence among companies that provide services has increased considerably in the last two months, the sector’s overall result was negative in the first two quarters of the year, especially in the second quarter, when the biggest quarterly drop since records began in 2008 was registered. The results were highly negative in all major segments of the service sector. The recovery in monthly data indicates that the third quarter may be less negative than the second quarter.

The complete study is available here.