Coronavirus Drag on U.S. Economy Appears Bigger Than Expected

BEIJING, CHINA - JANUARY 30: Chinese children wear plastic bottles as makeshift homemade protection and protective masks while waiting to check in to a flight at Beijing Capital Airport on January 30, 2020 in Beijing, China. The number of cases of a deadly new coronavirus rose to over 7000 in …
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The coronavirus outbreak may be taking a heavier toll than expected on businesses in the United States, according to a survey released Friday.

Private sector firms across the U.S. signaled “a slight decline in business activity in February,” IHS Markit said.

The IHS Markit Flash U.S. Composite PMI Output Index dropped to 49.6 in February. That is down from 53.3 in January and below the consensus forecast.

IHS said that overall contraction was driven by a the first fall in service sector output in four years.
“With the exception of the government-shutdown of 2013, US business activity contracted for the first time since the global financial crisis in February. Weakness was primarily seen in the service sector, where the first drop in activity for four years was reported, but manufacturing production also ground almost to a halt due to a near-stalling of orders,” Chris Williamson, Chief Business Economist at IHS Markit, said.

The culprits for the February slump: coronavirus and politics.

“Total new orders fell for the first time in over a decade. The deterioration in was in part linked to the coronavirus outbreak, manifesting itself in weakened demand across sectors such as travel and tourism, as well as via falling exports and supply chain disruptions,” Williamson said. “However, companies also reported increased caution in respect to spending due to worries about a wider economic slowdown and uncertainty ahead of the presidential election later this year.”

The IHS Markit report stands in stark contrast to the surveys of manufacturing businesses released this week by the Philadelphia and New York Federal Reserve banks. Those showed a stronger-than-expected uptick in growth in their regions. All three reports are based on surveys of business executives.

One silver lining in the IHS report is that businesses not only remain optimistic but are becoming more so.

The survey data are consistent with GDP growth slowing from just above 2% in January to a crawl of just 0.6% in February. However, the February survey also saw a notable upturn in business sentiment about the year ahead, reflecting widespread optimism that the current slowdown will prove shortlived.”

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