The Services Sector is Contracting

SK Ashby
Written by SK Ashby

The American manufacturing industry has been in recession since the fall of 2019 while the services sector has remained relatively healthy backed by consumer demand, but that could change.

While the purchasing managers' index has showed that factory orders dipped last fall, a broader reading that includes services now shows contraction.

From Bloomberg:

The IHS Markit purchasing managers’ index measuring composite output at factories and service providers fell by 3.7 points to 49.6, the lowest level since October 2013, when the U.S. government shut down, according to preliminary figures released Friday. Readings below 50 indicate contraction. [...]

The deterioration “was in part linked 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,” IHS Markit economist Chris Williamson said in a statement.

The stumble in the IHS Markit survey was led by service providers, whose new orders registered the first contraction in data going back to 2009, while the manufacturing PMI fell to a six-month low of 50.8. Companies in both sectors noted reluctance among clients to place orders amid the global virus scare.

People infinitely more qualified than I am say this contraction was caused by the coronavirus, but I don't think it would be wrong to supplement that by saying this also exposes underlying weakness in demand that could overcome fears of the virus if the economy were healthier for average people; not wealthy stockholders.

If it's true that the virus has had such a significant effect on the economy before we even face an outbreak here in the United States, I can scarcely imagine what a legitimate outbreak could do to the economy.

I hesitate to draw too many conclusions from it, but we've seen a lot of headlines in recent weeks showing economic indicators dropping to Great Recession-era levels.