Getty ImagesThe numbers: Business in the U.S. posted the biggest contraction in March since the end of the Great Recession owing to massive disruptions caused by the coronavirus.
A “flash” reading by the forecasting firm IHS Markit showed a small decline in manufacturing and a steep dropoff in service-oriented companies that have been hardest hit by the pandemic.
The initial survey results only cover the early part of the month, however,m before many large segments of the economy were shut down, but it gives a bad taste of what is coming. Economists predict the U.S. economy could post the biggest contraction in history in the next several months if a worst-case scenario comes to pass.
The situation is just as bad if not worse in Europe.
Read: Flash eurozone PMI plunges to worst-ever reading in March
What happened: The manufacturing index slipped to 49.2 from 50.7. Although exports have suffered, most manufacturers continue to make necessary items, especially consumer goods for Americans stuck in their homes. Some large companies are even shifting production to help make critical medical equipment that’s in short supply.
The service side of the economy has suffered the deepest blow. Many retailers, hotels, sit-in restaurants and other companies that rely on foot traffic have either been forced to close or cut back hours. Entire industries such as airlines are barely operating.
The flash service index sank to 39.1 in March from 49.4, marking the lowest level recorded since similar data became available in October 2009, IHS said. And it’s only going to get worse.
Any number under 50 signifies contraction.
See: MarketWatch Economic Calendar
What they are saying?: “The survey underscores how the U.S. is likely already in a recession that will inevitably deepen further,” said Chris Williamson, chief business economist at IHS Markit.
“Unusually for an economic downturn, these restrictions suggest that the services sector will continue to fare far worse than manufacturing over the coming months,” said Andrew Hunter, senior U.S. economist at Capital Economics.
Big picture: Ugly. Unprecedented efforts to slow the spread of the coronavirus is sending the U.S. into the first recession in 11 years. How bad it gets and how long it lasts will depend on how quickly the government identifies all the people who’ve contracted the virus and isolates them. It could take awhile.
Read: Trump weighs whether coronavirus-induced shutdown doing ‘more harm than good’
Market reaction: The Dow Jones Industrial Average DJIA, +6.80% and S&P 500 SPX, +6.12% rallied in early Tuesday trades on expectations that Congress will pass a massive $ 2 trillion rescue package. The 10-year Treasury yield TMUBMUSD10Y, +6.23% rose slightly to 0.85%.
