Economy softens on coronavirus worries and 2020 election qualms, IHS Markit finds

The numbers: Business in the U.S. contracted in February for the first time in four years owing to disruptions caused by the coronavirus and growing angst over the outcome of the 2020 presidential election, a survey of the economy has found.

The forecasting firm IHS Markit said its indexes for manufacturers and service-oriented firms both declined this month, according to a “flash” or preliminary reading. And the services index turned negative for the first time since 2015.

One bright spot: Most executives who were polled said they think the current weakness is temporary and that business will bounce back later in the year.

There’s “widespread optimism that the current slowdown will prove shortlived,” said Chris Williamson, chief business economist at IHS Markit

Read: This barometer says the U.S. economy got off to a good start in 2020

What happened: In a big surprise, the index covering the large service side of the economy sank 4 points to 49.4, IHS Markit said Friday. The coronavirus scare is already hurting companies in the tourism and travel industries that generate lots of business from Chinese customers.

The flash manufacturing gauge, meanwhile, slipped to 50.8 points from 51.9 in January.

Any number over 50 signifies expansion; below 50 points to contraction.

Big picture: The U.S. appeared to get off to a good start in 2020, but the damage caused by the spread of the COVID-19 illness in China has disrupted global supply chains and other parts of the world economy.

Apple AAPL, -1.05% , for instance, warned sales might fall short of forecast because it might not be able to produce and ship iPhones on schedule. More and more companies are also saying their businesses have been hurt.

The U.S. economy appears sturdy enough to weather the storm for now, but if the coronavirus keeps spreading it’s impossible to say how much damage could be done.

What they are saying?: “The deterioration in 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,” Williamson said. “However, companies also reported increased caution in respect to spending due to worries about a wider economic slowdown and uncertainty ahead of the presidential election later this year.”

Read: U.S. jobless claims cling near postrecession low

Market reaction: The Dow Jones Industrial AverageDJIA, -0.90% and S&P 500 SPX, -0.98% fell in Friday trades, reflecting the angst in financial markets over the spread of the COVID-19 illness.

The 10-year Treasury yield TMUBMUSD10Y, -4.17% dipped below 1.5% for the first time since September.

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