Coronavirus Impact on the Manufacturing Sector
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Here's your Money Briefing. I'm J.R. Whelan at The Wall Street Journal in New York. After a sluggish 2019, things were looking up for factories around the world. But the progress made since the start of the new year is in danger of being wiped away by the global response to the coronavirus outbreak.
There are definitely fears that this could disrupt global supply chains and travel at a time where the manufacturing industry was already struggling quite a lot.
That's Wall Street Journal economics reporter Harriet Torrey. She'll explain what impact economists think the coronavirus response will have on the global manufacturing sector. That's next.
How did global manufacturing start 2020 before the coronavirus concerns emerged?
Despite Tuesday's sharp gains on Wall Street, fears over the impact of the coronavirus have sent jitters through global stock markets. And now those fears have seeped into the manufacturing sector. Wall Street Journal economics reporter Harriet Torrey is on the line with us to discuss. So Harriet, up to now, 2020 was looking like factory output would be seeing a resurgence.
2019 was a pretty difficult year for the manufacturing industry, particularly the second half of the year. And so at the turn of the year, there were sort of hopes that the manufacturing industry would be picking up. And indeed, there was some data out on Monday morning from the Institute for Supply Management that said that their manufacturing index, the PMI, rose back into growth territory in January, having had five straight months of contraction. So that was the manufacturing sector in the US is sort of poised to do a bit better. Of course, there's this big question mark now related to the coronavirus, because there are definitely fears that this could disrupt global supply chains and travel at a time where the manufacturing industry was already struggling quite a lot.
And January surveys of factories in Asia and Europe showed a slower decline in output. So hopefully that's pointing to a rebound in activity in the coming months. But there is this now this big question mark over everything because of the coronavirus outbreak.
And there's a particular concern over supply chains with respect to electronics coming out of China.
Why do economists fear the coronavirus could disrupt global supply chains?
Yeah, so China is the world's largest manufacturing economy, and factories around the globe rely on its products to make their own. You know, a lot of economists sort of don't quite know how bad this is going to get, but one sort of historical comparison that they have is the SARS outbreak, which was 17 years ago. And the big difference today is that back when SARS hit, China represented 6% of global GDP, and now it makes up 16% of global GDP. So the potential impact is definitely much bigger.
Now, China has no doubt felt the effects of the spread of the virus. And you mentioned that the U.S. manufacturing sector had seen a positive move and a resurgence. But there are pockets of areas around the world where there has been some weakness since the start of the year.
Certain countries, particularly countries that are very trade and export-oriented, have really been struggling during the trade war between U.S. and China. One of those is Germany and also Japan. Those are the world's third and fourth largest manufacturing economies, and they did record a continued contraction in PMI in January. So manufacturing is definitely under pressure in certain places as the coronavirus began to spread.
And how are fears about the spread of the coronavirus impacting new orders?
Well, actually, in the US, new orders picked up pretty strongly in January. And so that was definitely a positive sign. And, you know, when you talk to people about what's going on, the potential impact of the coronavirus on US manufacturing, there are certain areas that at least initially should not be hugely impacted. And that would be employment in the US and production. So for U.S. manufacturers at the moment, this appears to be more of a potential supply chain issue that they're worried about not getting parts and components when they need them to make goods. But that, you know, for the time being, the employment situation in the manufacturing sector and the production itself looks to be pretty solid.
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