Coronavirus-related supply chain disruption is taking its toll on U.S. firms, with a recent survey of company purchasing managers showing a slump in business activity in February that’s being blamed in part on the spread of the disease.
Other factors weighing on business activity include reluctance by companies to spend on equipment and labor because of worries about a broader economic slowdown and uncertainty ahead of the U.S. presidential elections in November, the data firm noted.
The IHS composite PMI, which tracks both the manufacturing and services sectors, dropped to 49.6, the lowest in 76 months, from a reading of 53.3 in January.
A reading of 50 is the threshold between expansion and contraction, with lower numbers associated with a drop in business activity.
The manufacturing sector barely escaped a slip into contraction, with the manufacturing PMI coming in at 50.8, the lowest since August and down from 51.9 in January.
Small Business Disruption
While big corporations have dominated the virus-related business disruption headlines—an example being Apple’s recent earnings downgrade announcement that caused its stock to dip and drove broader risk asset selloffs—small businesses in the United States may be just as vulnerable.“Small businesses, particularly retail, will likely see an issue in regards to keeping inventory,” said Brandon Renfro, assistant professor of finance at East Texas Baptist University, in an emailed statement to The Epoch Times. “If factories in China are shut down, that means the local retailers who carry products manufactured in China can’t restock. For a very small business, the issue is even worse because what large corporations call quarterly profits, small business call food and utilities money. They just often aren’t as capable of weathering a squeeze.”
“Now, U.S. firms may more seriously consider onshoring manufacturing capacity in order to limit further disruption from global supply unpredictability,” said Jimmy Hinton, senior managing director at Transwestern, in an emailed statement to The Epoch Times.
Hinton noted that may lead to a rush by retailers to stockpile inventory as a hedge against more disruption.
G-20 Overshadowed by Virus Worries
Finance leaders of the world’s top 20 economies wrapped up their two-day meeting Feb. 23 that was dominated by growing concern over the widening fallout from the coronavirus outbreak.The Group of 20 finance ministers and central bank heads faced a sober presentation by the International Monetary Fund, which predicted that the epidemic would shave 0.1 percentage point off global growth.
“In our current baseline scenario, announced policies are implemented, and China’s economy would return to normal in the second quarter. As a result, the impact on the world economy would be relatively minor and short-lived,” IMF Managing Director Kristalina Georgieva said on Feb. 22.
“But we are also looking at more dire scenarios where the spread of the virus continues for longer and more globally, and the growth consequences are more protracted,” she added.
