WASHINGTON- US factory manufacturing activity slowed in February as new orders contracted, reflecting worries about supply chain disruptions related to the fast-spreading coronavirus outbreak, which has revived financial market fears of a recession.
While other data on Monday showed construction spending increased by the most in nearly two years, hitting a record high in January, the upbeat news was overshadowed by the coronavirus epidemic. Global stock markets have tumbled, with Wall Street’s key indexes suffering their worst week since the 2008 global financial crisis last week. The yield on the two-year Treasury note fell below 1 percent for the first time since 2016.
Investors worry the flu-like virus could derail the longest economic expansion on record, now in its 11th year. Federal Reserve Chair Jerome Powell on Friday described the US economy’s fundamentals as “strong,” but acknowledged that “the coronavirus poses evolving risks to economic activity,” and said the US central bank would “use our tools and act as appropriate to support the economy.”
“It is more critical than ever for companies to get those supply chain inputs used in production from China, otherwise the manufacturing sector may indeed fall back into a recession,” said Chris Rupkey, chief economist at MUFG in New York.
The Institute for Supply Management (ISM) said its index of national factory activity fell to a reading of 50.1 last month from 50.9 in January. Economists polled by Reuters had forecast the index would slip to 50.5 in February.
A reading above 50 indicates expansion in the manufacturing sector, which accounts for 11 percent of the US economy.
The ISM index pulled above the 50 threshold in January for the first time in five months, as trade tensions between the United States and China eased following the signing of a partial deal that month. But the coronavirus epidemic, which has killed at least 3,000 people and infected more than 80,000, most of them in China, is a new threat for factories.
Data and some regional Fed factory surveys had hinted at some stabilization in manufacturing after it slumped last year. With manufacturing barely expanding, that could put pressure on the Trump Administration to suspend all US tariffs on Chinese imports.
The ISM said “global supply chains are impacting most, if not all, of the manufacturing industry sectors.” About six industries, including computers and electronics, fabricated metal and chemical producers, reported the coronavirus outbreak was impacting their businesses. — Reuters
