Coronavirus Impact on the Manufacturing Sector

Summary

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Podcast Summary: WSJ Your Money Briefing

Episode: Coronavirus Impact on the Manufacturing Sector
Date: February 5, 2020
Host: J.R. Whelan (Wall Street Journal)
Guest: Harriet Tory (Economics Reporter, WSJ)

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Overview

This episode examines how the emerging coronavirus outbreak (Covid-19) was threatening a fragile recovery in the global manufacturing sector at the start of 2020. After a tough year in 2019, manufacturers worldwide were hopeful for a rebound, but the sudden emergence of the coronavirus cast uncertainty over supply chains, production forecasts, and economic growth. Economics reporter Harriet Tory breaks down industry data, the changing global role of China, and how new risks are affecting business expectations, especially in the U.S., Europe, and Asia.

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Key Discussion Points & Insights

1. 2019’s Manufacturing Troubles and Hopes for 2020

• Background:

  • 2019 was a "pretty difficult year for the manufacturing industry, particularly the second half of the year." (Harriet Tory, 01:42)
  • At the start of 2020, there were "hopes that the manufacturing industry would be picking up," buoyed by early positive data.
  • US manufacturing PMI (Purchasing Managers' Index) returned to growth territory in January after six months of contraction.

• Quote:

  • “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...” — Harriet Tory (01:53)

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2. Coronavirus Threatens Supply Chains

• Disruption Concerns:

  • The outbreak could "disrupt global supply chains and travel at a time where the manufacturing industry was already struggling quite a lot." (Harriet Tory, 00:53)
  • Factories in Asia and Europe showed a "slower decline in output" in January, hinting at recovery—now thrown into question.

• China’s Pivotal Role:

  • China is the world's largest manufacturing economy and central to global supply chains.
  • During the 2003 SARS outbreak, China accounted for 6% of global GDP; now it contributes 16%. This magnifies potential disruptions.

• Quote:

  • “China is the world’s largest manufacturing economy and factories around the globe rely on its products to make their own...” — Harriet Tory (02:42)
  • “The big difference today is that...now it [China] makes up 16% of global GDP. So the potential impact is definitely much bigger.” — Harriet Tory (02:55)

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3. Global Manufacturing Hotspots: The Weakest Links

• Germany and Japan:

  • Both suffered continued contractions in January.
  • Especially exposed due to their export-driven economies amid the US-China trade war and now coronavirus.

• Quote:

  • “Certain countries, particularly countries that are very trade and export oriented, have really been struggling during the trade war...One of those is Germany and also Japan.” — Harriet Tory (03:27)

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4. US Manufacturing Resilience—For Now

• Demand & Employment:

  • In the US, "new orders picked up pretty strongly in January"—a positive sign (Harriet Tory, 03:55).
  • Immediate impact on US employment and production is expected to be limited; the main worry is supply chain disruption.

• Quote:

  • “For US manufacturers at the moment, this appears to be more of a potential supply chain issue...But...the employment situation in the manufacturing sector and the production itself looks to be pretty solid.” — Harriet Tory (04:10)

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5. Additional Headwinds: Trade, Boeing, and Geopolitics

• Tariffs and Trade Tensions:

  • The previous trade war created uncertainty and stifled business investment.
  • The early 2020 trade deal offered hope for renewed growth—but coronavirus now clouds that optimism.

• Boeing Shutdown:

  • Boeing's production halt is flagged as another major potential drag on US manufacturing, affecting both exports and employment.

• Geopolitical Risks:

  • Tensions in Iran and possible impacts on oil prices also add to the uncertainty for manufacturers.

• Quote:

  • “There are...other things going on in the US economy which give cause for concern. So for instance, Boeing’s production shutdown could have a big impact on the first quarter.” — Harriet Tory (05:01)

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Memorable Quotes & Highlights

• On the size of China’s impact:
  “...the big difference today is that back when SARS hit China represented 6% of global GDP and now it...makes up 16%...” — Harriet Tory (02:55)

• US manufacturing’s current state:
  “For US manufacturers...this appears to be more of a potential supply chain issue...for the time being, the employment situation...and the production itself looks to be pretty solid.” — Harriet Tory (04:10)

• Lingering uncertainty:
  “But there are, of course, the coronavirus does potentially throw that into doubt.” — Harriet Tory (04:57)

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Timestamps for Important Segments

• [00:36] Host J.R. Whelan introduces the threat coronavirus poses to manufacturing
• [01:42] Harriet Tory explains 2019’s struggles and 2020’s early optimism
• [02:36] Discussion of China’s centrality to global supply chains and comparison to SARS
• [03:27] Weakness in Germany and Japan’s manufacturing sectors
• [03:55] US new orders and potential impact of coronavirus
• [04:42] Trade, Boeing, and geopolitical risks further complicate outlook

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Conclusion

This episode provided a real-time snapshot of an industry on the brink of recovery, only to face sudden new uncertainties due to coronavirus. It underscores how global interconnectedness—especially with China—leaves manufacturing vulnerable to shocks, and how even amid positive indicators like rising US orders, the outlook can rapidly deteriorate due to novel risks. The discussion highlights both the resilience and fragility in global manufacturing as 2020 began.

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Transcript

[Small Business Owner 1]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Small Business Owner 2]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner 1]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Small Business Owner 2]

they need while increasing megastore profits. They deserve it, don't they?

[Harriet Tory]

Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.

[J.R. Whelan]

Here's your Money briefing. I'm J.R. whalen 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.

[Harriet Tory]

There are definitely fears that this could disrupt global supply chains and travel at a time where the manufacturing was already struggling quite a lot.

[J.R. Whelan]

That's Wall Street Journal economics reporter Harriet Tory. She'll explain what impact economists think the coronavirus response will have on the global manufacturing sector. That's next. 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 Tory is on the line with us to discuss. So, Harriet, up to now, 2020 was looking like factory output would be seeing a resurgence.

[Harriet Tory]

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 of PMI rose back into growth territory in January, having been having 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 corona coronavirus outbreak.

[J.R. Whelan]

And there's a particular concern over supply chains with respect to electronics coming out of China.

[Harriet Tory]

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 fact, 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 had China represented 6% of global GDP and now it makes, makes up 16% of global GDP. So the potential impact is definitely much bigger.

[J.R. Whelan]

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.

[Harriet Tory]

Certain countries, particularly countries that are very trade and export oriented, have really been struggling during the trade war between US and China. One of those is Germany and also Japan. Those are the world's third and fourth largest, 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.

[J.R. Whelan]

And how are fears about the spread of the coronavirus impacting new orders?

[Harriet Tory]

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, 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 US 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 for the time being, the employment situation in the manufacturing sector and the production itself looks to be pretty solid.

[J.R. Whelan]

And the fears over the virus seem to be derailing some momentum because we closed out the year feeling the effects of tariffs on trade. And it seemed as if things were turning a corner.

[Harriet Tory]

Yeah, businesses in the US did have a very difficult time passing how tariffs and trade were going to affect operations, particularly in the second half of the year. And it looked with the trade deal that we kind of got signs of in mid December and which was signed in early January, that finally we were starting to put this behind us and that business investment could be ripe for a pickup in the first quarter. But there are, of course, the coronavirus does potentially throw that into doubt. And there are other things going on in the US economy which are give cause for concern. So for instance, Boeing's production shutdown could have a big impact on the first quarter it's a huge exporter, it's a huge employer in the manufacturing sector. And of course, there are other sort of geopolitical things that have been going on, like, for instance, the tensions in Iran and how that could impact oil prices. So these are all things that manufacturers are contending with at the start of 2020.

[J.R. Whelan]

All right. That's Wall Street Journal economics reporter Harriet Tory with us. Harriet, thanks for coming on the show.

[Harriet Tory]

Thanks.

[J.R. Whelan]

And that's your money briefing. I'm J.R. whelan in New York for the Wall Street Journal.

[Small Business Owner 1]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Small Business Owner 2]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner 1]

See, banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Small Business Owner 2]

they need while increasing megastore profits. They deserve it, don't they?

[Harriet Tory]

Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.