Manufacturing sector slows in February; orders contract

WASHINGTON (Reuters) - U.S. factory manufacturing activity slowed in February as new orders contracted, likely reflecting worries about supply chain disruptions related to the fast-spreading coronavirus outbreak, which has revived financial market fears of a recession.

The Institute for Supply Management (ISM) said on Monday its index of national factory activity fell to a reading of 50.1 last month from 50.9 in January. Economists polled by  Reuters had forecast the index slipping to 50.5 in February.

A reading above 50 indicates expansion in the manufacturing sector, which accounts for 11% of the U.S. economy. The ISM index pulled above the 50 threshold in January for first time in five months, as trade tensions between the United States and China eased following the signing of a partial deal that month.

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But the coronavirus epidemic, which has killed nearly 3,000 people and infected more than 80,000, most of them in China, is a new threat for factories. Data and some regional Federal Reserve factory surveys had hinted at some stabilization in manufacturing after it slumped last year.

In addition to fracturing the supply chain and undercutting exports, a slowdown in travel plans related to the disease's outbreak is also seen hampering the services industry.

Apple last month warned investors it was unlikely to meet revenue targets for the first quarter of 2020 and that global iPhone supplies would be limited as manufacturing sites in China were not ramping up production as quickly as expected. Financial markets are worried that the coronavirus could derail the longest economic expansion on record, now in its 11th year.

The ISM's forward-looking new orders sub-index dropped to a reading of 49.8 in February from 52.0 in January. A measure of exports orders fell last month after accelerating to its highest level since September 2018 in January.

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Manufacturers also reported paying less for raw materials and other inputs. The ISM's factory employment index fell to 46.9 last month from 46.6 in January, suggesting manufacturing payrolls could remain weak after declining in December and January.

The pullback in the ISM's closely watched national index bucked a series of fairly upbeat readings on the manufacturing sector at the regional level. A purchasing manager survey tracking the Chicago region rose to a six-month high in February. There was a rebound in factory activity in the district that covers Texas.

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Manufacturing activity in areas watched by the Philadelphia and New York Fed also picked up. But a separate survey from data firm IHS Markit showed its manufacturing sector PMI fell to a reading of 50.8 in early February from 51.9 in January.

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(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama)