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US business levels fall sharply amid coronavirus

US business levels fall sharply amid coronavirus

  • 21 February 2020
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Business activity in the US services sector fell last month for the first time since 2013, hurt by the coronavirus, according to a survey.

The drop came amid a "notable worsening" in the services sector, which includes finance and retail, the IHS Markit research firm reported.

New orders received by private sector firms also declined for the first time since 2009, it said.

US financial markets fell sharply following the report.

Latest IHS Markit/CIPS PMI data suggested that services business activity fell to 49.4, from 53.4 in January, while manufacturing output slowed to 50.8, compared to 51.9 in January, a six-month low. Any score below 50 indicates contraction.

The blue chip Dow Jones Industrial Average and S&P 500 fell more than 0.8%, while the tech-heavy Nasdaq was more than 1% lower.

The IHS survey found that manufacturing output was hurt by delivery delays from China, while services industries such as travel also took a hit.

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Executives also reported spending more cautiously, amid questions about the upcoming presidential election and worries about the possibility of a wider economic slowdown.

The survey found a modest rise in business confidence, suggesting that executives are hopeful the slowdown will prove short-lived. But the rate of contraction last month was still severe, said Chris Williamson, chief business economist at IHS.

"With the exception of the government shutdown of 2013, US business activity contracted for the first time since the global financial crisis in February," he said.

Image copyright AFP
Image caption US services business activity fell in February for the first time since 2016

In recent weeks, companies around the world, including Apple, sportswear firms, airlines and carmakers, have reported slowdowns.

But analysts have said that the US - where consumer spending drives much of the economy - remains relatively insulated from the effects, assuming the coronavirus outbreak wanes relatively soon.

US jobs growth beat expectations last month, while the overall economy is growing at about 2.1%, according to the most recent government figures.

The IHS Purchasing Managers Index (PMI) report will raise fears about the country's underlying economic health, said Michael Pearce, senior US economist at Capital Economics, adding that the contraction in the service sector - which includes industries like healthcare - was especially alarming.

However, he added: "We have a hard time believing the apparent message...that the economy is on the brink of a recession.

"Unless job creation and consumer confidence suddenly craters, it's difficult to see how the new downside risks that have emerged in recent months would be enough to sink the entire economy."