U.S. Service Industries Feel Weight of Coronoavirus Uncertainty
04 March 2020 - 9:09PM
Dow Jones News
By Amara Omeokwe and Gwynn Guilford
WASHINGTON -- Concerns about the novel coronavirus epidemic
clouded the outlook in February for U.S. businesses in service
industries, posing a new risk to economic growth.
Private data firm IHS Markit said Wednesday its U.S. services
index -- a survey-based measure of activity in industries such as
communications, finance and transportation -- fell sharply last
month compared with January, as firms reported declining client
demand and new business from abroad.
The index fell to 49.4 in February from 53.4 in January. A level
above 50 indicates expansion, while a reading below 50 signals
contraction. It was the first contraction for the index since
October 2013, Markit said.
Chris Williamson, chief business economist at IHS Markit, said a
drop in foreign visitors and overseas sales weighed on the U.S.
travel and tourism industry last month, but the slowdown in
service-industry activity was wide-ranging.
"Sectors such as financial services and business services are
reporting virus-related hits to demand, suggesting a more
broad-based weakening of demand across the economy," Mr. Wiliamson
said.
Also Wednesday, the Institute for Supply Management's survey
results showed service-industry businesses were seeing disruptions
tied to the virus in February.
Respondents reported longer lead times for materials sourced
from China, where efforts to contain the virus have led to
widespread quarantines and halted factory production.
"It is difficult to [make] sourcing decisions, since it is not
clear how long China will need to return to normal production
capacity, and if it is worth it to pay more from other countries,"
one ISM survey respondent said.
Anthony Nieves, chair of ISM's services survey committee, said
coronavirus concerns generated more comments than any other topic
in his 10 years of issuing the report.
"Most of it is surrounding the uncertainty of it," Mr. Nieves
said. "It's more about the psyche and what effect [coronavirus]
will have, mostly on supply chain," he added.
The coronavirus epidemic, which originated in China, has spread
rapidly in recent weeks. The global death toll now stands at more
than 3,000 people, and countries including Italy, South Korea and
the U.S. have reported a growing number of cases.
Responses to the epidemic have disrupted manufacturing supply
chains and weighed on tourism and travel activity, with most of the
impact felt in Asia. The IHS Markit and ISM data released Wednesday
are among the first to reflect economic effects in the U.S.
The Federal Reserve responded Tuesday to intensifying anxiety
about the epidemic by cutting its benchmark interest rate a
half-percentage point, to a range between 1% and 1.25%. The cut was
the first rate change made outside of scheduled Fed policy meetings
since the 2008 financial crisis.
"The virus and measures being taken to contain it will weigh on
economic activity here and abroad for some time," Fed Chairman
Jerome Powell said at a news conference following the emergency
rate cut.
The U.S. economy had shown signs of stability before the
widening of the coronavirus epidemic. The unemployment rate in
January, at 3.6%, remained near a 50-year low. Consumer surveys
from early February showed Americans remained optimistic about
future economic conditions, and measures of business investment
ticked higher in early 2020.
ISM, whose report covered the entire month of February, said
service-sector business activity increased last month despite
coronavirus concerns. Its services index climbed to 57.3 in
February from 55.5 the previous month.
The ISM survey "does underline that economic growth was
gathering momentum before the coronavirus outbreak began in
earnest," said Michael Pearce, senior U.S. economist at Capital
Economics, in a note to clients.
The epidemic now casts doubt over whether that will continue.
Economists at S&P Global Ratings Tuesday cut their forecast for
U.S. growth in the first and second quarters of this year to an
annualized 1% versus 2% pre-virus.
Beth Ann Bovino, S&P's Global Ratings' chief economist, said
the disease outbreak "will be a material headwind to growth in the
near term."
Write to Amara Omeokwe at amara.omeokwe@wsj.com
(END) Dow Jones Newswires
March 04, 2020 15:54 ET (20:54 GMT)
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