The U.S. economy is on track to grow just 0.6% in February as services activity plunges to multi-year lows.
Output in the U.S. services sector plunged to more than six-year lows in February, the first tangible sign of China’s coronavirus outbreak hitting home.
IHS Markit’s flash services purchasing managers’ index (PMI) registered 49.4 in February on a scale where 50 separates expansion from contraction. That’s down from 53.4 in January and the first negative reading since 2013.
Manufacturing PMI also weakened to 50.8 from 53.4 the prior month. That’s the lowest in seven months.
Markit’s composite PMI of services and manufacturing activity also contracted for the first time in over six years, falling to 49.6 in February from 53.3 in January.
After a fairly robust start to the year, the U.S. economy appears to be teetering on the brink of contraction in February. Chris Williamson, Markit’s chief business economist, says the PMIs point to GDP growth of just 0.6% in February.
With the exception of the government-shutdown of 2013, U.S. 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.
The weakness in American output was partly linked to the ongoing coronavirus outbreak, which has affected everything from travel and tourism to exports and supply chains. According to Markit, businesses are curbing spending plans due to “worries about a wider economic slowdown and uncertainty ahead of the presidential election later this year. ”
The impact of coronavirus on American business is tame compared with what’s happening in China. Hundreds of millions of people are under some kind of quarantine, impacting everything from labor productivity to consumer spending. Inflation is surging and home sales are plunging as a result.
Foreign manufacturers that rely on Chinese supply chains have reported major disruptions. An Australian industrial equipment manufacturer recently told the South China Morning Post that only 15% of its Chinese migrant workers have returned following the extended Lunar New Year.
The economic blow back from coronavirus could be reflected in China’s forthcoming data releases. On Monday, the National Bureau of Statistics in Beijing will report on fixed-asset investment, industrial production and retail sales for the month of January. No consensus estimates on the data have been collected yet, according to FXStreet.
The latest official data show nearly 77,000 people have been diagnosed with coronavirus. The death toll has risen to 2,248.
Last modified: September 23, 2020 1:37 PM