/Capitol Report: Coronavirus and the economy: Businesses face growing shortages, confidence plunges

Capitol Report: Coronavirus and the economy: Businesses face growing shortages, confidence plunges


How badly is the coronavirus epidemic damaging the global economy? How much is the resulting COVID-19 illness hurting U.S. businesses and consumers? Here’s an ongoing MarketWatch update on what the economic VIPs are saying.

•Three-quarters of U.S. businesses say their supply chains have been disrupted by the coronavirus, a new survey shows. And more expect to face problems soon.

Companies say it’s taking twice as long to obtain supplies and it’s also gotten harder to get materials shipped to the United States, according to the Institute for Supply Management. Some firms have trimmed their sales forecasts and others may follow suit soon.

“The story the data tells is that companies are faced with a lengthy recovery to normal operations in the wake of the viral outbreak,” said Thomas W. Derry, the ISM’s chief executive.

• Companies all over the world have become alarmed by the rapid spread of the coronavirus and the damage it’s caused. A weekly survey by Moody’s found that business confidence has fallen sharply to the lowest level since the 2008 financial crisis. Only 6% of businesses said conditions are improving.

“The virus has slammed business confidence,’ said Mark Zandi, chief economist at Moody’s Analytics.

• The U.S. economy was growing around 2.2% in the first two months of the 2020 first quarter, according to the latest forecast by IHS Markit Research.

The threat from the coronavirus only started to be felt at the end of February and in early March, economists says, so there’s a good chance GDP could end up notable softer.

“We expect to see much larger effects in the March data and beyond,” Goldman Sachs told clients.

• Recession talk has been bandied about every now and then in the past several years, but the threat seems far more serious now because it’s not a problem governments can fully address with monetary or economic policy. Fortunately the U.S. economy was fundamentally sound before the viral outbreak.

“COVID-19 has put the current U.S. economic expansion, the longest in history, at serious risk. The most vulnerable industries are high-tech manufacturing, travel and tourism, and energy,” PNC Financial Services told clients. “Given solid economic fundamentals a U.S. recession is not inevitable.”

• Not everyone is buying all the doom and gloom. The improving situation in China and South Korea suggests other countries, including the U.S., can recover more quickly than financial

DJIA, -4.63%

 appear to be signaling. So says chief economist Stephen Stanley of Amherst Pierpont Securities.

“[F]inancial markets act like the coronavirus is just going to get worse and worse for months on end,” he wrote to clients, “but the U.S. could probably get ahead of this with more aggressive testing, social distancing, etc. in a matter of weeks.”

The big choice facing the public officials, he contends, is whether to intervene extremely aggressively like China to stymie the spread of the disease or to take a more measured approach like Italy did early on. Italy has since adopted more drastic measures as the outbreak worsened.

“We could take a really big hit to the economy for a few weeks, as everyone hunkers down, and knock this virus out soon,” Stanley said, “or we could let people go about their business, which means a smaller economy hit up front, at the risk of a longer outbreak and/or a higher caseload.”

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