US manufacturing fell in August for 1st time in 3 years

Andrew Cummings
September 4, 2019

US manufacturing activities contracted for the first time in three years in August, data released Tuesday by the Institute for Supply Management (ISM) showed.

The Institute for Supply Management, an association of purchasing managers, said Tuesday that its manufacturing index slid to 49.1 last month, from 51.2 in July.

This compared with a figure of 51.2 in July.

Economic activity in the manufacturing sector contracted in August, and the overall economy grew for the 124th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc.

The sector is particularly susceptible to economic headwinds from the global economy because a sizeable portion of the demand for USA products comes from overseas. Last month marked the first time since August 2016 that the index broke below the 50 threshold. The 2-year note rate was unchanged at 1.506%, while the 30-year bond yield slipped 2.7 basis points to 1.946%.

In the name of protecting domestic industries, Washington has placed steep tariffs on billions of USA dollars' worth of products from China, a heavy blow to the two countries' economic and trade relations.

A measure of export orders, a proxy of overseas demand, sank to 43.3, the lowest reading since April 2009 during the depths of the last recession. This is the lowest reading since January 2016, when the index registered 48%.

"To the extent that manufacturing remains weak, that increases the potential chance for a recession down the road". This raises the risk that factory payrolls contracted in August.

Manufacturing employment is being closed watched after the workweek dropped to its lowest level since November 2011 in July and factories cut overtime.

But so far manufacturers aren't cutting back as much as they did then.

"This (ISM) report is a warning that the tariff and trade uncertainty is continuing to weigh on manufacturing activity, and that this uncertainty is a growing risk to the expansion", said John Ryding, chief economist at RDQ Economics in NY.

The ISM PMI wasn't the only index showing slowdown, either. "There is plenty of production capacity, employee levels are staffed to do more than they are doing, supply chains are positioned to respond, and inventory counts are being micromanaged".

That sentiment resonated across all industries. A furniture and related products respondent said that incoming sales seem to be slowing down during what is usually the respondent's busiest season, adding that there are concerns about the economy and tariffs.

"Looking ahead, US manufacturers will likely continue to face an extended period of trade policy uncertainty coupled with wavering domestic demand and little improvement in foreign demand conditions", Raptis said.

In a separate report on Tuesday, the Commerce Department said construction spending edged up 0.1%.

The German 10-year government bond yield fell 2.5 basis points to negative 0.723%.

Other reports by iNewsToday