US manufacturing activity sank to decade-low

Andrew Cummings
October 3, 2019

Numbers released on Tuesday by the Institute for Supply Managements (ISM) showed that the country's manufacturing activity fell to below ten-year lows in September, weighed down by the trade war between the USA and China as well as expectations for an economic slowdown on a global scale in the coming months. A reading above 50 denotes growth in the sector. Despite the PMI being in contraction territory, the overall economy grew in September for the 125th consecutive month.

"We expect that the slowdown in the manufacturing index will eventually spill over to the broader economy, and this latest drop in manufacturing ISM index points to even more downside risks for the upcoming non-manufacturing ISM index, which is due to be released on Thursday", read a note to clients from two NatWest Markets economists, Michelle Girard and Kevin Cummins.

Meanwhile, shortly after release of US ISM data for September, accusing the Federal Reserve over United States' worst downturn on manufacturing activity in a decade, US President Donald Trump tweeted, "As I predicted, Jay Powell and the Federal Reserve have allowed the Dollar to get so strong, especially relative to ALL other currencies, that our manufacturers are being negatively affected".

Most of the report's key metrics, including the PMI, dropped in September.

Today's report from the Institute of Supply Management suggests that weakness in the manufacturing sector continued in September.

Although this is only the second straight month in which the index has been below 50 percent, it's the sixth straight month that it's declined. Employment contracted at a faster rate in September.

Total orders were slightly better than in August but still in contraction. "The trade war is wreaking havoc, to the point where the incipient upturn in manufacturing in China is not transmitting, at all, to the USA". And an electrical equipment, appliances, and components respondent noted that the economy seems to be softening, adding that the tariffs have caused much confusion in the industry.

"Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019", said Timothy Fiore, chair of the ISM's manufacturing business survey committee.

"That is a very negative [development] and has a direct relation to what is going on with the new order number", he said. This is compounded by the fact that the backlog of orders shrunk.

Measures of production and employment slipped by 2.2% and 1.1%. Consensus estimates are for a 4,000 increase in manufacturing jobs for the month.

Fiore made it clear that the current predicament manufacturers are up against are forcing them to take a long-term approach.

Of 18 industries surveyed, 3 experienced growth - miscellaneous goods, food and chemical products - and even they reported growth was weak to flat. "It is just not happening now".

"A sub-50 ISM does not imply overall recession in the US - a sub-44 ISM would". There's Trump's, which is to blame anyone and anything except the trade war he initiated. The news about American manufacturing shrinking comes a day after the WTO announced that it's cutting its forecast for global trade growth from 2.6 percent to 1.2 percent, the weakest projection since the Great Recession.

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