By Lucia Mutikani
WASHINGTON (Reuters) – U.S. manufacturing activity plunged to an 11-year low in April as the novel coronavirus wreaked havoc on supply chains, supporting analysts’ views the economy was sinking deeper into recession.
The Institute for Supply Management (ISM) said on Friday its index of national factory activity dropped to a reading of 41.5 last month from 49.1 in March. That was the lowest level since April 2009, just a few months before the Great Recession ended. A reading below 50 indicates contraction in the manufacturing sector, which accounts for 11% of the U.S. economy.
Economists polled by Reuters had forecast the index falling to 36.9 in April. The smaller-than-expected drop in the ISM index was because the survey’s measure of supplier deliveries surged to a reading of 76.0 last month from 65.0 in March.
A lengthening in suppliers’ delivery times is normally associated with a strong economy and increased customer demand, which would be a positive contribution. But in this case slower supplier deliveries indicate supply shortages related to the coronavirus pandemic and not stronger demand.
The report came in the wake of news on Wednesday that the economy suffered its sharpest contraction since the Great Recession in the first quarter, ending the longest expansion in the United States’ history. The economy is being pressured by nationwide lockdowns to slow the spread of COVID-19, the respiratory illness caused by the virus.
At least 30.3 million Americans have filed for unemployment benefits since mid-March. Economists say the economy fell into a recession in the last two weeks of March, when states and local governments ordered non-essential workers to stay at home.
The rule of thumb in many countries is to define a recession as two consecutive quarters of decline in real gross domestic product, but the National Bureau of Economic Research, the private research institute regarded as the arbiter of U.S. recessions, does not use that definition.
Instead, it looks for a decline in economic activity, spread across the economy and lasting more than a few months.
The ISM’s forward-looking new orders sub-index tumbled to a reading of 27.1 in April, the lowest since December 2008, from 42.2 in March. The survey’s measure of order backlogs at factories plummeted to 37.8 last month from 45.9 in March.
With orders collapsing, manufacturers slashed payrolls last month. The ISM’s factory employment index plunged to a reading of 27.5 last month, the lowest since February 1949, from 43.8 in March. Economists believe the government’s closely watched employment report next Friday will show a record more than 20 million people lost their jobs in April.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
