US business activity hits record low in March

There was sharp contraction in both the US manufacturing and services sectors in March as the coronavirus took its toll, according to flash data released on Tuesday.

The IHS Markit composite output index fell to 40.5 from 49.6 in February, hitting its lowest level since the survey began in October 200.

A reading below 50.0 indicates contraction, while a reading above signals expansion.

The services PMI fell to a record low of 39.1 in March from 49.4 while the manufacturing PMI declined to 49.2 from 50.7.

The survey found that steep rates of contraction were signalled for production and new orders, both of which fell to the greatest extent since 2009, with many firms attributing this to the escalation of preventative measures following the outbreak.

Chris Williamson, chief business economist at IHS Markit, said: "US companies reported the steepest downturn since 2009 in March as measures to limit the Covid-19 outbreak hit businesses across the country.

"The service sector has been especially badly affected, with consumer-facing industries such as restaurants, bars and hotels bearing the brunt of the social distancing measures, while travel and tourism has been decimated. However, manufacturing is also reporting a slump in demand, with production falling at a rate not seen since 2009, linked to either weak client demand, lost exports or supply shortages."

He pointed out that jobs are already being slashed at a pace not seen since the global financial crisis in 2009, as firms either close or reduce capacity amid widespread cost-cutting.

"The survey underscores how the US is likely already in a recession that will inevitably deepen further. The March PMI is roughly indicative of GDP falling at an annualised rate approaching 5%, but the increasing number of virus-fighting lockdowns and closures mean the second quarter will likely see a far steeper rate of decline."

Andrew Hunter, senior US economist at Capital Economics, said the plunge in the Markit composite PMI to a record low confirms that the virus outbreak is already taking a severe toll on economic activity.

"The details suggest that conditions in the manufacturing sector are still holding up relatively well, with the manufacturing PMI seeing a much smaller decline," he said. He added that while that still represents the weakest reading since mid-2009, it "pales in comparison" to the collapse in the services PMI.

"On past form, the composite PMI is consistent with GDP contracting at a 5% annualised pace, which would be one of the biggest quarterly declines on record. But with the virus continuing to spread rapidly and the lockdowns already in place across parts of the country only likely to be extended, we now suspect that the second-quarter hit will be substantially larger than that. This further underlines the need for a major fiscal stimulus, if only to help underpin an eventual recovery when the virus is brought under control."