The US manufacturing sector shrank for the first time in three years in August, according to a respected industry gauge, as trade tensions and a global economic slowdown weigh on factory output.
The purchasing managers’ index (PMI) from the Institute for Supply Management (ISM) fell to 49.1 last month, its lowest score since the start of 2016. A figure below 50 indicates contraction.
The weak reading was considerably below economists’ predictions of a score of 51.1.
It will worry policymakers in the administration of US President Donald Trump, which has promised to bring manufacturing jobs back to the country and return the sector to its former glory.
It comes after the US ratcheted up tariffs on Chinese goods even further at the weekend and Beijing put into place retaliatory measures.
ISM chair Timothy Fiore said: “August saw the end of the PMI expansion that spanned 35 months, with steady expansion softening over the last four months.”
“Comments from the panel reflect a notable decrease in business confidence,” he said. “Trade remains the most significant issue, indicated by the strong contraction in new export orders.”
One survey respondent whose firm is in the chemical products sector said: “While business is strong, there is an undercurrent of fear and alarm regarding the trade wars and a potential recession.”
Another manager said: “We continue to plan for a hard Brexit and a long trade war between the US and China.”
Worryingly for future growth, new orders and employment fell significantly in the manufacturing sector in August.
Andrew Hunter, senior US economist, said: “While slower global growth has been the main headwind facing US manufacturers over the past 12 months, the press release highlighted that the renewed escalation of trade tensions with China is starting to weigh more heavily on sentiment.”
“That will only reinforce the concerns of [US Federal Reserve] officials over the impact of trade uncertainty on the economy.”
Hunter said the survey data “provides another reason to think that another 25 basis points [0.25 percentage points] rate cut is coming at the [Fed’s] meeting in two weeks’ time”.
(Image credit: Getty)