Preliminary data released by IHS Markit on Tuesday pointed to a sharp contraction in business activity in March, due to the escalation of the coronavirus disease 2019 (COVID-19) outbreak.

According to the report, the Markit flash manufacturing purchasing manager's index (PMI) came in at 49.2 in March, down from 50.7 in February. That pointed to the fastest deterioration in operating conditions since the depths of the financial crisis. Economists had expected the reading to decrease to 42.8. A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. According to the report, the lower headline index reading was buoyed by longer supplier delivery times, while steep rates of contraction were recorded for production and new orders, both of which fell to the greatest extent since 200.

Meanwhile, the Markit flash services purchasing manager's index (PMI) tumbled to 39.1 this month, from 49.4 in the prior month. The latest reading signaled the fastest contraction in business activity in the ten-and-a-half year series history. Economists had expected the reading to drop to 42.0. According to the report, the contraction in headline index was driven by a steep fall in new business, which decreased the most since data collection began in late-2009, as both domestic and foreign client demand weakened. In addition, employment fell at the sharpest pace since October 2019.

Overall, IHS Markit Flash U.S. Composite PMI Output Index came in at 40.5 in March, down from 49.6 in February, pointing to the steepest contraction in the private sector since comparable survey data were available in October 2009.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at HIS Markit, noted "US companies reported the steepest downturn since 2009 in March as measures to limit the COVID-19 outbreak hit businesses across the country. The service sector has been especially badly affected, with consumer-facing industries such as restaurants, bars and hotels bearing the brunt of the social distancing measures, while travel and tourism has been decimated. However, manufacturing is also reporting a slump in demand, with production falling at a rate not seen since 2009, linked to either weak client demand, lost exports or supply shortages."

"The survey underscores how the US is likely already in a recession that will inevitably deepen further. The March PMI is roughly indicative of GDP falling at an annualised rate approaching 5%, but the increasing number of virus-fighting lockdowns and closures mean the second quarter will likely see a far steeper rate of decline," he added.