U.S. business activity plumbed new record lows in April as the novel coronavirus severely disrupted manufacturing and services industry production, pushing the economy into uncharted waters.
Data firm IHS Markit said on Thursday its flash U.S. Composite Output Index, which tracks the manufacturing and services sectors, plunged to a reading of 27.4 this month. That was lowest since the series began in late-2009 and followed a final reading of 40.9 in March. A reading below 50 indicates a contraction in private sector output.
States and local governments have issued “stay-at-home” or “shelter-in-place” orders affecting more than 90% of Americans to control the spread of COVID-19, the potentially lethal respiratory illness caused by the virus, and abruptly halting economic activity. Since March 21, more than 22 million people have filed for unemployment benefits.
“The COVID-19 outbreak dealt a blow to the U.S. economy of a ferocity not previously seen in recent history during April,” Chris Williamson, chief business economist at IHS Markit, said in a statement. “The deterioration in the flash PMI numbers indicates a rate of contraction exceeding that seen even at the height of the global financial crisis.”
Economists say the economy slipped into recession in March.
The National Bureau of Economic Research, the private research institute regarded as the arbiter of U.S. recessions, does not define a recession as two consecutive quarters of decline in real GDP, as is the rule of thumb in many countries. Instead, it looks for a drop in activity, spread across the economy and lasting more than a few months.
The IHS Markit survey’s services sector flash Purchasing Managers Index dropped to an all-time low reading of 27.0 this month from 39.8 in March. Economists polled by Reuters had forecast a reading of 31.5 in April for the services sector, which accounts for roughly two-thirds of the U.S. economy.
Factory activity contracted further this month, with the flash manufacturing PMI sinking to 36.9. That was the lowest since March 2009 and following a final reading of 48.5 in March. Economists had forecast the index for the sector, which accounts for 11% of the economy, falling to 38.0 in April.
A measure of new orders received by factories dropped at its steepest pace since early 2009, suggesting manufacturing production could continue to decline through the second quarter. The Federal Reserve reported last week that manufacturing output dropped at its sharpest pace in 11 years in the first quarter.
Manufacturing was already struggling from the fallout of the Trump administration’s trade war with China well before the before the coronavirus hit U.S. shores.
In addition to COVID-19 fracturing global supply chains, a spectacular collapse in U.S. oil prices this week is seen undercutting demand for oil drilling and shaft exploration equipment, pressuring domestic manufacturers.
According to IHS Markit, “many firms highlighted the cancellation or postponement of both domestic and foreign orders following the pandemic escalation,” noting that manufacturers were pessimistic about outlook for output over the coming year.
It said though some manufacturers “expressed hopes of a turnaround in the third quarter, many firms were concerned about the timespan of any recovery and the longevity of current emergency public health measures.”