February 26, 2020
U.S. business activity shrank in February for the first time since 2013 as the coronavirus hit supply chains and made firms hesitant to place orders, a warning sign that the outbreak is starting to dent the world’s largest economy.
The IHS Markit purchasing managers’ index measuring composite output at factories and service providers fell by 3.7 points to 49.6, the lowest level since October 2013, when the U.S. government shut down, according to preliminary figures released on Feb. 21.
The 30-year Treasury yield touched a record low and U.S. stocks extended declines in the minutes following the release. The S&P 500 index was on track to record its first weekly drop this month.
It’s the first major piece of U.S. economic data to show a sizable hit from the coronavirus. Economists see the virus as generally cutting more into Asian countries’ growth. Similar indexes in Japan and Australia also weakened, likely cementing the disease’s economic impact as a key topic at this weekend’s meeting of Group of 20 finance chiefs.
The deterioration “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,” IHS Markit economist Chris Williamson said.
The epidemic has so far killed more than 2,200 people, mostly in China, and infected more than 75,000. The spread is accelerating outside of China, whose adjustments to the number of cases have raised questions about the reliability of the data.
The stumble in the IHS Markit survey was led by service providers, whose new orders registered the first contraction in data going back to 2009, while the manufacturing PMI fell to a six-month low of 50.8. Companies in both sectors noted reluctance among clients to place orders amid the global virus scare.
White House economic adviser Larry Kudlow said Friday that the virus is only hitting the U.S. economy in a “small way.”
“So far, it does not look like — whether it be supply chain or other problems — that the U.S. economy is getting hurt in any significant way. In a small way yes, in a significant way no,” Kudlow said in an interview on CNBC He said it does not seem to be a “major blow.”
The Markit composite index showed new exports contracted for a second month and hiring slowed.
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