How Bad Could It Get? Companies Gauge the Coronavirus Impact

How Bad Could It Get? Companies Gauge the Coronavirus Impact

As the coronavirus outbreak spreads, the world’s biggest companies have begun painting a bleak picture of broken supply chains, disrupted manufacturing, empty stores and flagging demand for their wares.

The announcements by businesses like Mastercard, Microsoft, Apple and United Airlines offer a reading on how the virus is affecting consumer behavior and business sentiment. These corporate bulletins — and what executives do in response — could determine how much economic damage the outbreak inflicts and whether a recession looms.

Some companies have expressed optimism that governments will curb new infections and that consumer spending in Europe and North America will be largely unscathed. But if executives see a threat beyond the first three months of the year, they may pare planned investments and even start laying off workers. That, in turn, would further dampen economic activity.

The stock-market plunge this week, the steepest since the financial crisis, suggests that investors are bracing for a lot more bad news.

“Everything is slowing down even more — and that has not been fully appreciated,” said Michael O’Rourke, chief market strategist at JonesTrading.

The correction in the S&P 500 stock index — a decline of 10 percent or more from a recent peak — was its fastest ever. In the midst of the sell-off, analysts at Goldman Sachs said they expected that the companies making up the S&P 500 would collectively show no profit growth this year. The bank had previously forecast a 6 percent increase in earnings.

A major vulnerability for businesses in the United States and Europe is their increasing reliance on China as a supplier and customer over the last 10 or 20 years.

Since the Lunar New Year holiday in China a month ago, many workers have been homebound, disrupting factories that assemble electronics or make automotive parts. Microsoft said this week that the virus had hampered production of its laptop and tablet computers, and it cut its sales forecast for the division that makes those products, scrapping a projection it had issued just a few weeks earlier.

The supply-chain problems have started to affect American homebuilders as well. A senior executive at Toll Brothers said the virus appeared to have delayed the supply of lighting parts.

The Coronavirus Outbreak

  • Answers to your most common questions:

    Updated Feb. 26, 2020

    • What is a coronavirus?
      It is a novel virus named for the crownlike spikes that protrude from its surface. The coronavirus can infect both animals and people and can cause a range of respiratory illnesses from the common cold to more dangerous conditions like Severe Acute Respiratory Syndrome, or SARS.
    • How do I keep myself and others safe?
      Washing your hands frequently is the most important thing you can do, along with staying at home when you’re sick.
    • What if I’m traveling?
      The C.D.C. has warned older and at-risk travelers to avoid Japan, Italy and Iran. The agency also has advised against all nonessential travel to South Korea and China.
    • Where has the virus spread?
      The virus, which originated in Wuhan, China, has sickened more than 80,000 people in at least 33 countries, including Italy, Iran and South Korea.
    • How contagious is the virus?
      According to preliminary research, it seems moderately infectious, similar to SARS, and is probably transmitted through sneezes, coughs and contaminated surfaces. Scientists have estimated that each infected person could spread it to somewhere between 1.5 and 3.5 people without effective containment measures.
    • Who is working to contain the virus?
      World Health Organization officials have been working with officials in China, where growth has slowed. But this week, as confirmed cases spiked on two continents, experts warned that the world was not ready for a major outbreak.