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Feb. 21, 2020, 10:27 a.m. EST

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

Key business index contracts in February for first time in four years

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By Jeffry Bartash, MarketWatch


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The U.S. economy got off to a good start in 2020, but growing worries over the coronavirus and uncertainty about the 2020 presidential election are weighing on businesses.

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.

See: Industrial output slumps in January for fourth decline in past five months

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 /zigman2/quotes/202934861/composite AAPL +0.0000%  , 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.

The upcoming presidential election is another potential pitfall. Leading Democrats vow to raise business taxes and increase regulations if they get elected

What they are saying?: “While we certainly wouldn’t rule out economic growth slowing further in the first quarter, weighed down by the crisis at Boeing and disruption due to the coronavirus, we have a hard time believing the apparent message from the Markit PMI that the economy is on the brink of a recession,” said eoonomist Michael Pearce of Capital Economics.

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

Market reaction: The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.36% and S&P 500 /zigman2/quotes/210599714/realtime SPX +0.45% fell in Friday trades, reflecting the angst in financial markets over the spread of the COVID-19 illness.

The 10-year Treasury yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.72% dipped below 1.5% for the first time since September.

/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 364.11
+0.0000 +0.0000%
Volume: 28.50M
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P/E Ratio
28.54
Dividend Yield
0.90%
Market Cap
$1578.17 billion
Rev. per Employee
$1.98M
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
25,827.36
+92.39 +0.36%
Volume: 350.29M
July 2, 2020 5:19p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,130.01
+14.15 +0.45%
Volume: 2.33B
July 2, 2020 5:19p
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/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
0.67
-0.0049 -0.72%
Volume: 0.00
July 2, 2020 2:01p
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Jeffry Bartash is a reporter for MarketWatch in Washington.

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