Manufacturing falls in April as virus ‘ravages’ economy
US consumer spending plunges record 7.5%, reflecting virus
WASHINGTON, May 2, (AP): U.S. manufacturing retreated again in April, a victim of economic fallout from the coronavirus outbreak.
The Institute for Supply Management, an association of purchasing managers, reported Friday that its manufacturing index dropped to 41.5 last month from 49.1 in March. Anything below 50 signals contraction.
The news was bad across the board: Production, new orders, hiring and export orders all fell faster in April than they did in March.
“The underlying details indicate a severe downshift in activity as production and employment contracted at a record pace,” economists Oren Klachkin and Gregory Daco of Oxford Economics wrote in a research report. “New orders signal that activity is unlikely to improve in the near term.
Economists had expected an even bigger drop.
The COVID-19 pandemic and the quarantines, travel restrictions and business closings imposed to combat it have hammered global manufacturers, disrupting their access to supplies and crushing demand for their products.
The U.S. economy has slid into recession: Gross domestic product – the broadest measure of economic output – fell at a 4.8% annual pace from January-March, worst since the recession year 2008, even though the United States only began to go into a lockdown in mid-March. The AprilJune quarter is expected to be by far the worst in Commerce Department records dating back to 1947.
Economists had expected an even bigger drop in the ISM’s manufacturing index.
Manufacturing was already hurting before the outbreak brought the economy to a near-standstill in March. The ISM manufacturing index has fallen seven of the last nine months. President Donald Trump’s trade war with China had raised costs and created uncertainty that paralyzed investment decisions.
U.S. consumer spending plunged 7.5% in March, reflecting the growing impact of the coronavirus pandemic as Americans complied with stay-athome orders.
The Commerce Department said that the spending decline was the sharpest monthly drop on records that go back to 1959, exceeding the previous record, a decline of 2.1% in January 1987.
Personal incomes also fell sharply last month, declining by 2% with wages and salaries, the largest part of incomes, falling by 3.1% as millions of Americans started getting lay-off notices.
The report said that the country experienced big declines as “consumers canceled, restricted or redirected their spending.”
The government reported Wednesday that the overall economy, as measured by the gross domestic product, shrank at an annual rate of 4.8% in the January-March quarter, led by the biggest quarterly drop in consumer spending since 1980.
Consumer spending accounts for 70% of economic activity and has been the economy’s standout performer in recent years However, with further sharp spending declines forecast, analysts are predicting that GDP will shrink by around 40% in the current April-June quarter, the biggest quarterly decline on record.
The GDP decline in the first quarter signaled the end of the country’s longest economic expansion, which had begun in June 2009. The Trump administration is hoping this downturn will be V-shaped, with a sharp fall followed by a rapid increase as stay-athome orders expire and Americans go back to work and resume normal activities such as shopping and eating in restaurants.
But many private economists worry that the downturn could linger until a vaccine against the virus is developed and becomes widely available, something that may not occur until the middle of next year.
“The coronavirus fear, the social distancing measures, the financial volatility and plummeting confidence have taken a severe toll on consumers’ ability and willingness to spend,” said Lydia Boussour, senior U.S. economist at Oxford Economics.
The March report showed that an inflation gauge closely followed by the Federal Reserve dropped 0.3% in March and is up 1.3% from a year ago, well below the Fed’s 2% target for inflation.
The Fed on Wednesday signaled that it would keep its benchmark interest rate near zero for the foreseeable future as part of its extraordinary efforts to bolster an economy expected to suffer its worst economic crisis since the 1930s.
U.S. construction spending edged up 0.9% in March as building activity escaped the early impacts of the coronavirus shutdowns.
The Commerce Department said that the increase followed a 2.5% drop in spending in February. Economists had been forecasting another decline in March as the efforts to contain the spread of the virus started to take hold.
While the overall figure did not decline in March, analysts believe big drops in activity will start showing up in the April report given the impacts already seen in other parts of the economy.
For March, residential construction rose up 2.3% as strength in apartment construction offset a drop in singlefamily homes.
Nonresidential construction fell 1.3%, with spending for hotels and office buildings both declining.
Spending for government projects was up 1.6% in March.