The numbers: Most U.S. manufacturers said business began to slow to a crawl in February as supply bottlenecks tied to the coronavirus impaired their ability to get parts, a survey of executives found.
The Institute for Supply Management said its manufacturing index dipped to 50.1% last month from 50.9%. Economists surveyed by MarketWatch had forecast the index to total 50.5%.
Readings over 50% indicate more companies are expanding instead of shrinking.
The index has been above the 50% cutoff point for two months in a row, but just barely. Before that the index had been negative for six straight months, and there is a good chance it could dip below the cutoff line again in the next several months.
“Layoffs are here.”
Few companies are adding new jobs as the employment gauge was negative for the seventh straight month. One executive in the transportation industry even said “layoffs are here.”
The ISM index is compiled from a survey of executives who order raw materials and other supplies for their companies. The gauge tends to rise or fall in tandem with the health of the economy.
Big picture: Damage reports from the coronavirus are just starting to come in and the situation could get a lot worse before it gets better. Plant shutdowns and other disruptions in China are starting to jam global supply lines while travel has been sharply curtailed.
The U.S. economy is likely to slow sharply until the viral outbreak is under control, but it’s still unclear how extensive the damage will turn out. Manufacturers had already been smarting from the U.S. trade war with China. The impact of the coronavirus could be even worse, at least in the short run.
What they are saying? “Manufacturing production and order book trends deteriorated markedly in February as producers struggled against the double headwinds of falling export sales and supply chain delays, both in turn often linked to the coronavirus outbreak,” said Chris Williamson, chief business economist at IHS Markit, another forecasting firm who manufacturing index has gotten considerably weaker.
Market reaction: The Dow Jones Industrial Average
and S&P 500
rose slightly in Monday trades, potentially breaking a string of declines that lopped more than 10% off the stock market in the past week. It was the biggest selloff since a major financial panic swept through Wall Street in 2008.
The 10-year Treasury yield
fell to another record low below 1.10%, as investors sought the perceived safety of government bonds.