- The Flash PMI reading for March dropped to 40.5%, down 9.1 percentage points from February, according to a report prepared by IHS Markit on Tuesday, marking the steepest decline in the U.S. manufacturing industry since data collection began in 2009. Manufacturers also reported the first contraction in new business and orders since the Great Recession amid sharp declines in supplier capacity and customer demand due to the COVID-19 outbreak.
- A Flash PMI is calculated based on 85% to 90% of manufacturer survey results for a given month and is considered an early indicator of full PMI results to be released in early April. A PMI result above 50 indicates growth, while a result under 50 indicates contraction.
- "Looking ahead, companies reported the sharpest fall in backlogs of work ever recorded by the surveys, hinting strongly that operating capacity will be scaled back further in coming months," the report found, with businesses' sentiment about the future reaching the lowest level it has ever recorded.
The flash results for March indicate what U.S. experts feared in February, that the full impact of the COVID-19 outbreak in China had yet to be fully felt. IHS Markit's February PMI report still showed signs of growth, coming in at 50.7%, but even then U.S. manufacturers reported "fractional" growth in new orders.
"While trade war fears have eased, helping push firms’ expectations for future growth to the highest since last April ... companies have become increasingly concerned that the COVID-19 outbreak will also hit demand, which is reportedly already cooling," Chris Williamson, chief business economist at IHS Markit, said in the February report.
Before the novel coronavirus hit, shippers were exploring digital manufacturing technologies to prepare for the next recession and regionalizing or reshoring factory operations to lower costs and build resilience during the trade war.
But now as COVID-19 continues to spread throughout the U.S., forcing workers to stay at home and manufacturers to shut down facilities, supply chains have slowed significantly in some instances. Manufacturers reported "average delivery times lengthening to an extent rarely seen over the past decade," according to IHS Markit's survey.
IHS Markit found manufacturers and suppliers have cut prices at the sharpest rate in over a decade in addition to lowering operating costs through reducing production capacity and workforce counts.
"The survey underscores how the US is likely already in a recession that will inevitably deepen further," IHS said. "The increasing number of virus-fighting lockdowns and closures mean the second quarter will likely see a far steeper rate of decline."
IHS Markit's China Flash PMI results for March also plummeted to nearly 26%, down from 40.3% in February, as a result of harsher quarantine measures and extended factory shutdowns relative to other parts of the world.
While there are some indications production is beginning to come back online, the firm estimates "if measures to contain the spread of COVID-19 prolong into the second half of the year, all sectors including the defensive utilities, healthcare, telecom and business services will feel the pain. An increasing number of corporates could deplete their cash reserves and default," meaning shippers should prepare now for increased financial risks domestically and abroad in the coming weeks.