Things took a rather dramatic turn on Friday in the US, when a flight-to-safety bid was exacerbated by the worst IHS Markit composite PMI print since October of 2013.
In an unexpected turn for a US economy that, by most indications, is holding up well, the flash read on Markit’s activity gauge is a cold, hard slap in the face.
New orders plunged to 49.8, the lowest in series history.
This is the first contraction-territory print since early 2016, during the depths of the deflation scare that ultimately prompted the Shanghai Accord.
And guess what? The word “virus” shows up in the accompanying commentary a half-dozen times.
“Although only fractional, the decrease in business activity brought to an end a near-four year sequence of expansion following a contraction in service sector output and a slower rise in manufacturing production amid supplier delays following the outbreak of coronavirus”, IHS Markit said Friday, adding that “new orders received by private sector firms fell for the first time since data collection began in October 2009”.
The release goes on to cite lackluster demand in the services sector and the most tepid pace of manufacturing new order volumes in nine months.
The services PMI printed 49.4 in the flash reading. That is a horrible miss to consensus (53.4) and the first contractionary read in four years. New business was the lowest on record.
Chris Williamson, Chief Business Economist at IHS Markit, delivered the news in straightforward terms:
With the exception of the government-shutdown of 2013, US business activity contracted for the first time since the global financial crisis in February. Weakness was primarily seen in the service sector, where the first drop in activity for four years was reported, but manufacturing production also ground almost to a halt due to a near-stalling of orders.
He went on to cite the culprits. Spoiler alert: It’s not just the virus. Political jitters are on the radar too. Here’s Williamson again:
Total new orders fell for the first time in over a decade. The deterioration was in part linked to the coronavirus outbreak, manifesting itself in weakened demand across sectors such as travel and tourism, as well as via falling exports and supply chain disruptions. However, companies also reported increased caution in respect to spending due to worries about a wider economic slowdown and uncertainty ahead of the presidential election later this year.
These figures, IHS Markit cautions, are consistent with GDP growth slowing to just 0.6% in February from 2% in January.
This comes as a bitter disappointment after ISM manufacturing finally climbed out of contraction territory earlier this month. The numbers also suggest that the US economy may not be as immune (figuratively or literally) from the coronavirus as many market participants seemed to believe.
And that, as they say, is that.