In this week’s Kickstart we said that incoming economic reports are likely to be noisy in the near-term as evidence of coronavirus-related supply and demand disruptions starts to show up in the data. Perhaps the first examples of this can be seen in this week’s release of several important business surveys. Headline gauges of manufacturing activity from both ISM and Markit, for instance, fell in February, with weakness stemming largely from global supply chain uncertainty and softness in the energy space. However, both indexes remained in expansion territory in February, and 14 of the 18 major manufacturing industries in the ISM sample continued to imply net growth in activity last month.
Service sector surveys, though, were a bit more mixed in February as the Markit PMI fell below 50 for the first time since 2016, whereas the ISM non-manufacturing index jumped to the best reading in a year. The conflicting signals show how hard it still is to predict what the ultimate impact of the coronavirus will be on the U.S. economy. It would not be surprising if these data points weaken further over the next few months if the contagion is not contained, but activity could also rebound quickly once the spread of the virus is under control. Perhaps the real takeaway should be that most of the data released so far this year describe an economy that kicked off 2020 with some positive momentum. This does not mean the expansion is completely sheltered from any epidemic-related disruptions but rather that the strong footing the U.S. economy finds itself on at the start of this year leaves it much better positioned to weather a coronavirus shock than the numerous “gloom and doom” headlines in the media would suggest.
Sources: IHS Markit, Institute for Supply Management