By Paul Hannon 

-- The U.S. factory sector contracted in March, as customer demand slid due to the new coronavirus, a survey of purchasing managers said.

-- The Institute for Supply Management said Wednesday its manufacturing index fell to 49.1 in March from 50.1 in February.

-- Economists surveyed by WSJ expected a reading of 44.5.

-- More to come

Factories across Asia and Europe cut output and jobs at the fastest pace since the global financial crisis, a sign the global economy has entered a deep freeze as governments lockdown their populations in an effort to contain the novel coronavirus and minimize mortality.

Meanwhile, in the U.S., the Institute for Supply Management on Wednesday said its manufacturing index fell to 49.1 in March from 50.1 in February. Economists surveyed by The Wall Street Journal expected a reading of 44.5 in March.

A series of business surveys released Wednesday painted an almost uniform picture of sharply declining production, falling new orders and contracting payrolls. The main exception was China, which registered a slight rebound in activity as its economy began to thaw out, having been the first to be frozen.

Factories across Asia and Europe reported a series of challenges. Some had shut entirely as workers were forced to stay at home to meet social-distancing requirements. Some had been forced to cut output because the raw materials and parts they needed had become scarce. And others had cut back because demand had fallen as the global economy entered a downturn.

Factory output and employment is likely to fall further before it starts to rebound, although that recovery may be limited by job cuts and shutdowns that can take time to reverse. If they don't receive help from governments, and forbearance from banks, some manufacturing companies may close for good.

"Manufacturing conditions are likely to get worse," said Rosie Colthorpe, an economist at Oxford Economics. "Increasingly strict lockdown measures, both in the eurozone and globally, will shut even more factories. Rising layoffs in the industrial sector reported in March mean factories won't be able to immediately restore production once containment measures are lifted."

In addition to China, there were other countries where some aspects of manufacturing activity defied the general trend. Turkish factories hired additional workers, and both the Netherlands and Taiwan just about managed to avoid a decline in overall activity in the sector.

But in most other countries the freeze has taken a huge toll on factories, overshadowed only by the toll it has taken on service providers.

In Europe, Italy has been hardest hit by the virus, and its manufacturing sector was hardest hit by the measures taken to contain it. Data firm IHS Markit's Purchasing Managers Index, a measure of activity in the sector, fell to 40.3 in March from 48.7 in February. A reading below 50.0 indicates a decline in activity compared with the previous month, and the measure for March points to the largest drop in almost 11 years.

"With the Italian economy effectively shut down, it is unlikely that any recovery from the significant Covid-19 disruptions will be swift," said Lewis Cooper, an economist at IHS Markit.

Factories in Greece, Poland and the Czech Republic were also hit hard by lockdowns and other setbacks. Germany, the continent's manufacturing powerhouse, saw the largest drop in output since the immediate aftermath of the financial crisis, although the impact was mixed across industries. IHS Markit said producers of tools and equipment, and automobiles saw the largest declines, while makers of cleaning products and protective clothing reported a pickup in output and hiring.

Food producers also reported a pickup as German shoppers stocked up on essentials, a practice known here as "Hamsterkäufe," or hamster-shopping. Figures released Wednesday showed German retail sales increased sharply in February in anticipation of lockdowns to curtail the coronavirus pandemic

In Asia, Vietnam and the Philippines logged the largest declines in activity, the latter registering an even larger drop than Italy. But big declines were also reported in Japan, South Korea, Indonesia and Thailand. In each of those countries, factories cut jobs.

In Europe, governments have rolled out a series of measures intended to limit the rise in unemployment as large parts of the economy hibernate. They include a series of programs that pay a big chunk of the wages of workers that companies have been forced to place on reduced hours.

The German Labor Agency Tuesday said around 470,000 businesses asked staff to work shorter hours in March, a record high. Detlef Scheele, the agency's chairman, said the number of workers on state-subsidized short-time work schemes would likely rise considerably higher than its peak during the 2008-09 financial crisis, when 1.4 million workers took advantage of the program.

Continental AG, the German automotive supplier, Wednesday said that in light of the temporary shutdown of nearly half its 249 factories, including most of its operations in Europe and the U.S., 30,000 German employees, or half the workforce in its home country, had been put on short-time work as of April 1.

"We have agreed with employee representatives to use all available options in the coming weeks to respond to this crisis in a flexible manner," Ariane Reinhart, Continental's executive board member for human resources. "Our mutual goal in the current phase is to protect our employees and to protect jobs. Instruments such as short-time work in Germany help us here."

In Switzerland, takeup appears likely to be high. Its survey of purchasing managers found that more than a quarter of manufacturing companies have already applied for government help, affecting 13% of their workers on average.

Even with those schemes, the number of people without work is expected to soar in Europe during the coming months. But that rise will take place from a low level: according to figures released by the European Union's statistics agency Wednesday, 88,000 people found work across the eurozone in February, lowering the unemployment rate to 7.3% from 7.4%, its lowest since March 2008.

--William Boston and Ruth Bender in Berlin contributed to this article

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

April 01, 2020 10:37 ET (14:37 GMT)

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