US private sector activity drops amid coronavirus fears: analysis

U.S. private sector output slumped in February as service sector activity declined for the first time in four years under pressure from the spreading coronavirus, according to data released Friday.

The IHS Markit U.S. composite output index, a closely watched gauge of overall U.S. private sector business activity, fell to 49.6 in February after notching 53.3 in January. A reading above 50 indicates increasing economic activity, while a reading below 50 indicates a contraction.

A rare drop in U.S. service sector activity, a driving force behind a record-stretch of economic growth, was responsible for February’s overall slowdown in business output. IHS Markit’s service sector index fell to 49.4 in February, the lowest level since the October 2013 government shutdown.

IHS Market chief business economist Chris Williamson attributed the decline to the coronavirus outbreak “manifesting itself in weakened demand across sectors such as travel and tourism, as well as via falling exports and supply chain disruptions.”

The scramble to contain the coronavirus, which originated in central China, has dampened global economic activity. Travel bans, quarantines, store closures and idled factories across Asia are likely to derail the Chinese economy and hinder U.S. companies that depend on travel, supply lines and sales throughout the continent. 

The steady spread of the coronavirus comes amid renewed concerns about the strength of the U.S. economy heading into a presidential election where it is expected to play a central role. President Trump has sought to ride a strong economy to another term in office, while Democratic challengers have focused on the shortcomings of the expansion.

A sharp increase in confirmed coronavirus cases Friday also drove a decline on Wall Street, driving the Dow Jones Industrial Average down nearly 200 points shortly after 1 p.m. The number of confirmed coronavirus cases rose above 75,000 on Friday, claiming at least 2,246 lives.

Williamson added that “companies also reported increased caution in respect to spending due to worries about a wider economic slowdown and uncertainty ahead of the presidential election later this year,” but a survey of business owners showed “a notable upturn in business sentiment about the year ahead, reflecting widespread optimism that the current slowdown will prove shortlived.”