New coronary pneumonia epidemic may cause US manufacturing industry to fall into recession crisis

Source: Xinhuanet April 02, 2020

The new pneumonia epidemic is gradually impacting many areas of the US economy. As more and more companies shut down and supply chains were interrupted, the US manufacturing industry began to experience the pain caused by the epidemic. In March, the U.S. Manufacturing Purchasing Managers Index (PMI) shrank again, which may only be the beginning of a downturn in the entire industry.

According to data released by the American Institute of Supply Management (ISM) on April 1, the U.S. manufacturing PMI in March fell by 1 point to 49.1, higher than market expectations of 45, but fell below the 50 line, which means that the manufacturing industry is stuck. Shrink. In that month, the new orders index was only 42.2, the lowest since March 2009; the employment index slipped further to 43.8.

ISM chairman Timothy Fiore said in a statement that he is pessimistic about the recent outlook of the US manufacturing industry. As a result of the New Coronary Pneumonia epidemic and global energy market volatility, all manufacturing industries in the United States have been affected. The six manufacturing industries of petroleum and coal products, textile industry, transportation equipment, furniture and related products, metal products and machinery have contracted.

The ISM Manufacturing Index is compiled based on the results of a survey of corporate executives responsible for raw material purchases and fluctuates with economic conditions. Analysts believe that the actual situation of the US manufacturing industry is much worse than the data showed.

According to a survey released recently by the National Manufacturers Association of America, more than one-third of US manufacturers have faced supply disruptions due to the spread of the new coronary pneumonia epidemic. Nearly 80% of manufacturers expect business to be damaged.

Chris Williamson, chief business economist at IHS Market, believes that more companies being forced to close means that manufacturing activities have \"collapsed\". Most manufacturing industries are experiencing rapid deterioration in demand and production. At the same time, corporate investment has nearly stalled, and capital equipment orders have deteriorated at the fastest rate since 2009. According to data previously released by the company, the IHS US manufacturing PMI in March fell to 49.2 from 50.7 in February, falling into contraction.

Manufacturing is one of the key industries supported by the US government in recent years. The current government hopes to promote the return of U.S. manufacturing through the issuance of administrative orders such as the purchase of \"made in the United States\" products and the imposition of additional tariffs, to reverse the hollowing out trend of local manufacturing and thereby increase employment. But so far these efforts have had little effect.

According to data from the US Department of Commerce, the value added of manufacturing to the actual GDP of the US has dropped to 11%, the lowest level since 1947. Fed data also shows that U.S. industrial output fell by 1.2% in 2019 compared to 2018. From August to December last year, the ISM manufacturing PMI contracted for five consecutive months. For the whole of last year, the average value of the indicator was 51.2, the lowest level in 10 years.

The Wall Street Journal wrote that the US manufacturing industry is already on \"defense\". Due to the continued trade tensions, the slowdown of domestic oil and gas exploration activities in the United States and the weak demand for machinery and equipment in the agricultural sector, the US manufacturing industry has continued to face tremendous growth pressure since last year. Today, the new coronary pneumonia epidemic adds new threats to American manufacturers.

In the epidemic of the United States \"Epicenter\" New York State, manufacturing operations are in trouble. According to data released by the Federal Reserve Bank of New York, the state’s manufacturing index fell to its lowest level since the 2008 international financial crisis in March, and optimism about the future also fell to its lowest level since 2009.

Caterpillar, based in Illinois, said that in the three months to February, the company's global machine sales fell 11% year-on-year. Minnesota manufacturing giant 3M expects that after adjustment, the company's first quarter revenue is likely to decline.

Analysts pointed out that as the epidemic spreads further, and governments at all levels take more large-scale control measures in response to the epidemic, the US manufacturing industry will likely face greater troubles. Oren Krachkin, the chief economist of the Oxford Economic Research Institute, believes that as long as the main part of the US economy is still in a state of substantial blockade and external demand remains sluggish, the timing and strength of the recovery of the US manufacturing industry are highly uncertain.

The judgment of Chris Lapkey, chief economist of Mitsubishi UFJ Financial Group, is even more pessimistic. He believes that US manufacturing is more like a depression. This means that the U.S. manufacturing industry is likely to have a longer recession period, during which a large number of enterprises will go bankrupt, unemployment rate rises significantly, and business confidence and business investment decline significantly.