How bad could it be? Companies evaluate the impact of coronavirus


As the coronavirus outbreak spreads, the world's largest companies have begun to paint a bleak picture of broken supply chains, interrupted manufacturing, empty stores and demand for their products.

The ads of companies such as Mastercard, Microsoft, Apple and United Airlines offer a reading on how the virus is affecting consumer behavior and business sentiment. These corporate newsletters, and what executives do in response, could determine how much economic damage the outbreak causes and whether a recession is coming.

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

The stock market crash this week, the strongest since the financial crisis, suggests that investors prepare for much 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.

Supply chain problems have also begun to affect American homebuilders. A senior Toll Brothers executive said the virus It seemed to have delayed the supply of lighting parts.

At the same time, Chinese consumers are buying less. Apple said closing stores in China would depress sales of iPhones and other devices.

Mastercard reduced its growth forecast partly because people are making fewer international trips. The fear of the virus has led companies such as Amazon and Nestlé to suspend the international travel of some employees. That drop in demand, combined with their own concerns about the virus, has led United and other airlines in the United States and Europe to cancel flights to cities in China and other parts of Asia.

On Friday, United said an information session for investors scheduled for next week would be postponed until September. Citing concern about the virus, the airline said it "does not think it is practical to expect it to have a productive conversation focused on its long-term strategy."

Companies may also have difficulties because investors are increasingly reluctant to lend them money. The appetite for new bonds, especially those issued by less solvent businesses, has diminished. Banks may also have to tighten loan standards. In a sign that investors believe that coronavirus concerns could affect banks, the actions of the three largest US banks. The US, JPMorgan Chase, Citigroup and Bank of America, have fallen much more than the S,amp;P 500 so far this year.

Of course, the coronavirus outbreak could end up resembling other brief shocks that have only caused blows in companies and the stock market. These include the fiscal battles of the previous decade that consumed Washington and Wall Street for weeks in a row.


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