Activity in the U.S. services and manufacturing sectors contracted sharply in March, as the coronavirus outbreak weighs on economic growth and grinds business operations to a halt, according to IHS Markit.
The firm’s flash U.S. services purchasing managers index (PMI) declined to a record low of 39.1 for the month, falling from a reading of 49.4 in February. This was well below the level of 42.0 expected, according to Bloomberg consensus data.
IHS Markit’s PMI for the domestic manufacturing sector fell to 49.2 in March from 50.7 in February, reaching the lowest level since 2009. Consensus economists expected the preliminary monthly PMI to come in at 43.5.
Readings below the neutral level of 50 signal contraction in a sector.
“U.S. companies reported the steepest downturn since 2009 in March as measures to limit the Covid-19 outbreak hit businesses across the country,” Chris Williamson, chief business economist at IHS Markit, said in a statement. “The service sector has been especially badly affected, with consumer-facing industries such as restaurants, bars and hotels bearing the brunt of the social distancing measures, while travel and tourism has been decimated.”
“However, manufacturing is also reporting a slump in demand, with production falling at a rate not seen since 2009, linked to either weak client demand, lost exports or supply shortages,” he added. “Jobs are already being slashed at a pace not witnessed since the global financial crisis in 2009 as firms either close or reduce capacity amid widespread cost-cutting.”
IHS Markit’s report adds to a growing pile of disappointing data depicting a U.S. economy that rapidly went from flourishing to languishing as the coronavirus pandemic overtook the country.
Earlier this month, the New York Federal Reserve’s Empire State Manufacturing survey posted the largest drop on record between February and March, as its overall index of business conditions fell to its lowest level since 2009. The survey noted a leveling off of employment, drop in average workweek and deterioration in firms’ optimism about the near-term outlook amid the coronavirus as cause for the decline.
A subsequent report from the regional Philadelphia Federal Reserve showed a similar “significant weakening in regional manufacturing activity,” as general business activity, new orders and shipments dropped “precipitously,” according to the bank.
As these reports rolled in, economists slashed their expectations for economic output in the U.S. Goldman Sachs economists said last week they expect a quarter-on-quarter annualized drop of 24% in U.S. gross domestic product (GDP) in the second quarter, and full-year output of -3.8% on an annual average basis.
Morgan Stanley economists on Sunday predicted an even steeper drop for the next quarter – they see U.S. GDP dropping at an annual rate of 30.1% in the April through June period.
IHS Markit’s latest data bolsters the evidence of a contraction in U.S. economic activity.
“The survey underscores how the U.S. is likely already in a recession that will inevitably deepen further,” Williamson said. “The March PMI is roughly indicative of GDP falling at an annualized rate approaching 5%, but the increasing number of virus-fighting lockdowns and closures mean the second quarter will likely see a far steeper rate of decline.”
Other countries’ data have also underscored economic deterioration as the coronavirus outbreak grips the world. The eurozone economy saw “an unprecedented collapse in business activity in March as the coronavirus intensified,” IHS Markit said, with the region’s flash PMI released earlier Tuesday more than 20 points to 31.4, its worst reading on record.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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