U.S. manufacturing slows as coronavirus hits supply chains

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Source: National Bureau of Statistics, via Bloomberg News

Source: National Bureau of Statistics, via Bloomberg News

U.S. manufacturing grew at a slower-than-expected pace last month, reflecting concerns about supply chain disruptions as the coronavirus spreads.

The Institute for Supply Management’s manufacturing index fell to 50.1 in February from 50.9 in January, according to CNBC. A reading above 50 indicates expansion; below 50 shows contraction.

Some data on Monday were more optimistic. Construction spending increased by the most in nearly two years, hitting a record high in January, according to Reuters. But that news was overshadowed by the coronavirus outbreak, which sent global financial markets tumbling last week.

The threat of a pandemic sent U.S. stocks Friday into their worst week since October 2008, according to Bloomberg.

The yield on the two-year treasury note fell below 1 percent for the first time since 2016.

Investors worry COVID-19 could derail the longest economic expansion on record, now in its 11th year.

Federal Reserve Chairman Jerome Powell last Friday described the U.S. economy’s fundamentals as “strong” but acknowledged that the “coronavirus poses evolving risks to economic activity,” adding that the U.S. central bank would “use our tools and act as appropriate to support the economy,” Reuters reported.

The Federal Reserve yesterday cut the federal funds rate by 0.50 percent to a range of 1 to 1.25 percent.

“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,” Chris Rupkey, chief economist at Mitsubishi UFJ Financial Group in New York, told Reuters.

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, which has killed at least 3,000 people and infected more than 80,000 worldwide, is a new threat for factories.

Many of those infected are in China, where the manufacturing sector contracted to its lowest level on record, according to Bloomberg.

The purchasing managers’ index plunged to 35.7 in February from 50 the previous month, according to data released by the National Bureau of Statistics, much lower than the median estimate of economists. That’s a record low; the number was 38.8 during the 2008 financial crisis.

The non-manufacturing gauge also fell to its lowest ever, 29.6. Both were well below 50, which denotes contraction.

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