Coupa Index Flashes Red Light on Economy after PMI

Today, the third-quarter Coupa BSI (Business Spend Index) was released. It’s a relatively new private economic indicator that offers insights into corporate spending.

The US PMI (purchasing managers’ index) was released yesterday. The ISM survey showed a contraction in US manufacturing activity.

As its name suggests, the Coupa (COUP) BSI tracks business spending decisions. It’s a relatively new index that launched earlier this year. Nonetheless, given heightened concerns about corporate spending amid trade war uncertainty, the BSI could offer clues into how businesses are thinking.

According to the Coupa BSI’s findings, “In the aggregate, business optimism heading into the second half of 2019 is weaker than it was in the early part of this year.” The report says that all industries—barring technology and manufacturing—are less optimistic now compared to the previous survey.

This conclusion may sound counterintuitive. The manufacturing sector has sagged amid trade war uncertainty, and several companies are realigning their supply lines. The technology sector has also borne the brunt of the trade war. Companies such as NVIDIA (NVDA), Micron (MU), Qualcomm (QCOM), and Broadcom (AVGO) have been hit by frequent rule changes over doing business with Huawei. The BSI survey also said, “Somewhat surprisingly, sentiment in High Tech was slightly up.”

The Coupa BSI also pointed out that retailers look less optimistic about the economy. That’s especially worrying considering the fact that the US consumer sector has been resilient so far. The consumer sector helped the US economy expand in the first half of the year. Retail stocks such as Walmart and Target are outperforming the markets this year.

Yesterday, the ISM released its US PMI (purchasing managers’ index). The survey showed that US manufacturing activity contracted in August after 35 months of expansion. The ISM said, “Respondents expressed slightly more concern about U.S.-China trade turbulence, but trade remains the most significant issue, indicated by the strong contraction in new export orders.”

The private IHS/Markit survey also pointed out that trade war uncertainty is taking a toll on manufacturers. China’s manufacturing PMI has also looked weak. However, we saw a divergence in August. While the IHS/Markit survey showed expansion, the official survey pointed to a contraction. However, the Coupa BSI shows that the manufacturing sector is in decent shape.

US markets opened higher today. As of 10:15 AM ET, the S&P 500 (SPY) was up 0.55%. NVIDIA, Micron, Qualcomm, and Broadcom were up 2.5%, 4.9%, 0.84%, and 2.8%, respectively. Coupa Software, the company behind the Coupa BSI, is up almost 13%.