World's factory output shrinks

Index dip reflects virus drag in U.S.

FILE - In this Sept. 27, 2018, file photo robots weld the bed of a 2018 Ford F-150 truck on the assembly line at the Ford Rouge assembly plant in Dearborn, Mich. Ford says it wants to reopen five North American assembly plants in April 2020 that were closed due to the threat of coronavirus. The three Detroit automakers suspended production at North American factories March 19 ago under pressure from the United Auto Workers union, which had concerns about members working closely at work stations and possibly spreading the virus. (AP Photo/Carlos Osorio, File)
FILE - In this Sept. 27, 2018, file photo robots weld the bed of a 2018 Ford F-150 truck on the assembly line at the Ford Rouge assembly plant in Dearborn, Mich. Ford says it wants to reopen five North American assembly plants in April 2020 that were closed due to the threat of coronavirus. The three Detroit automakers suspended production at North American factories March 19 ago under pressure from the United Auto Workers union, which had concerns about members working closely at work stations and possibly spreading the virus. (AP Photo/Carlos Osorio, File)

WASHINGTON -- Manufacturing contracted in the United States and around the world last month, dragged down by economic fallout from the coronavirus outbreak.

The Institute for Supply Management, an association of purchasing managers, reported Wednesday that its U.S. manufacturing index fell to 49.1 in March after registering 50.1 in February. Any reading below 50 signals a contraction. The index had signaled growth in January and February.

The 1-point drop was caused by a sharp increase in delivery times that often signals a flurry of demand. Instead, the latest jump in the supplier deliveries index, the biggest since 2005, reflects the virus outbreak that's led to dysfunction in global supply lines and created a sales vacuum as many businesses close.

Also Wednesday JPMorgan reported that global manufacturing shrank in March. Its worldwide manufacturing index registered 47.6 in March. That was a slight improvement on February's 47.1 -- but only because Chinese factories began ramping back up last month after being locked down in February to counter covid-19. Excluding China, JPMorgan found, global manufacturing dropped to the lowest level last month since May 2009 at the depths of the recession.

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Economists had expected a bigger drop in the U.S. index. Timothy Fiore, chairman of the institute's manufacturing index committee, said that "things got worse" as March dragged on and predicted that the index will signal more weakness in April. New orders and factory employment fell last month to the lowest level since 2009. Production and export orders also fell.

"I've never seen anything move as quickly as this," Fiore said, citing furloughs and layoffs last week that are likely to be reflected in the government's weekly unemployment claims data due today. "We definitely haven't hit the bottom."

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.

But the impact of the outbreak is falling even harder on service businesses such as restaurants and hotels.

"Manufacturing is not, for the most part, in the very front line of the virus hit, but nonetheless large swathes of the sector are vulnerable as consumers cut back on spending on goods, especially big-ticket items like cars and trucks," Ian Shephardson, chief economist at Pantheon Macroeconomics, wrote in a research report, adding that "while this headline [institute] reading is a pleasant-looking surprise, don't be fooled."

Ten of 18 U.S. industries surveyed reported growth in March, but six contracted, led by energy companies, coal producers and textile mills.

The gauge of manufacturer inventories, the final component that is used to calculate the overall institute index, was little changed and still contracting.

The group's gauge of prices slumped to a more than four-year low, partly reflecting a plunge in the cost of crude oil amid both a price war between Russia and Saudi Arabia and weaker demand.

The drop in the factory purchasing managers' index was preceded by other, more-dismal regional reports. The Federal Reserve banks of Dallas, New York, Philadelphia and Kansas City all reported record monthly declines in their manufacturing gauges.

Already weakened by President Donald Trump's trade war with China, manufacturers around the world are reeling from covid-19 and its economic fallout.

Manufacturing in the Philippines dropped to the lowest level on record as authorities locked down Luzon, the country's biggest and most populous island, to combat covid-19.

JPMorgan also reported that Italy, the Czech Republic and Vietnam registered especially deep manufacturing contractions last month.

In the euro area, manufacturing shrank in Germany, France and Italy, the region's three largest economies. Italy's index of output dropped to the weakest since the series began in June 1997. The United Kingdom also reported a sharp drop in factory output and employment.

"The concern is that we are still some way off peak decline for manufacturing," said Chris Williamson, chief business economist at IHS Markit. "Company closures, lockdowns and rising unemployment are likely to have an unprecedented impact on expenditure around the world, crushing demand for a wide array of products."

Information for this article was contributed by Paul Wiseman of The Associated Press and by Vince Golle, Michelle Jamrisko, Enda Curran and Piotr Skolimowski of Bloomberg News.

photo

A volunteer sews elastic into a medical mask Monday at the Tara Grinna Swimwear factory in Conway, S.C. The factory has converted from making custom swimsuits to sewing elastic into N95 masks. Orders to U.S. factories contracted in March at the quickest pace in 11 years. (AP/The Sun News/Jason Lee)

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