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Trumponomics Delivers First Manufacturing Contraction In Nearly A Decade

• The U.S. manufacturing PMI (purchasing managers index) was 49.9 in August, below the neutral 50.0 threshold for the first time since September 2009, according to IHS Markit. Trumponomics Delivers First Manufacturing Contraction In Nearly A Decade

• New orders received by manufacturers dropped the most in 10 years, while the data also showed export sales tanked to the lowest level since August 2009, the data shows.

• The survey is an initial reading for the month of August. The final figure will be released Sept. 3.

U.S. manufacturer growth slowed to the lowest level in almost 10 years in August, the latest sign that the trade war may be exacerbating the economic slowdown.

The U.S. manufacturing PMI (purchasing managers’ index) was 49.9 in August, down from 50.4 in July and below the neutral 50.0 threshold for the first time since September 2009, according to IHS Markit.

Any reading below 50 signals a contraction. The survey is an initial reading for the month of August. The final figure will be released Sept. 3.

“Manufacturing companies continued to feel the impact of slowing global economic conditions,” Tim Moore, economics associate director at Markit, said in a statement Thursday. “August’s survey data provides a clear signal that economic growth has continued to soften in the third quarter.”

Manufacturing had been one of the big winners during the Trump administration, but the tit-for-tat tariffs in the U.S.-China trade war have taken a big bite from the sector. U.S. manufacturing activity slowed to a nearly three-year low in July, based on data from the Institute for Supply Management.

But this fresh survey showed new orders received by manufacturers dropped the most in 10 years, while the data also showed export sales tanked to the lowest level since August 2009.

Investors track PMI readings to get early indicators as to where the economy is headed. After the Markit reading, stocks fell and the yield curve inverted.

“The most concerning aspect of the latest data is a slowdown in new business growth to its weakest in a decade, driven by a sharp loss of momentum across the service sector,” Moore said. “Survey respondents commented on a headwind from subdued corporate spending as softer growth expectations at home and internationally encouraged tighter budget setting.”

Manufacturers continued to reduce their inventories this month, which was mainly attributed to concerns about the demand outlook, according to Markit.

The overall economy is still showing a slight expansion because of help from the service industry. U.S. overall business activity growth also fell to a three-month low as the seasonally adjusted IHS Markit Flash U.S. Composite PMI Output Index dropped to 50.9 in August, signalling a “renewed slowdown” in the rate of U.S. private sector business activity growth, Markit said.

There are several readings of manufacturing activities coming next week with the Dallas Fed sentiment data on Monday and Chicago PMI on Aug. 30.

Recession Spreads Across U.S. Economy

Economists lower third-quarter growth estimates after household spending nudged up 0.1% in August.

Consumers slowed spending and businesses cut back on investment in August, signs a wobbling global economy and rising tariffs are curbing U.S. economic momentum.

Personal-consumption expenditures, or household spending, edged up a seasonally adjusted 0.1% in August from July, the Commerce Department said Friday. The modest growth marked a sharp pullback from the first seven months of the year, when spending rose an average of 0.5% a month.

American consumers had been a bright spot in the economy. But weaker August spending showed consumers might be succumbing to some of the external headwinds that have shaken businesses and manufacturers for months.

Slowing global growth, fading effects from the 2017 tax cut and rising trade frictions are weighing on the U.S. economy.

“The domestic economy is not immune to all these headwinds,” said Lydia Boussour, U.S. economist at Oxford Economics. “The economy is gradually cooling.”

Consumer spending is the driving force behind the U.S. economy, accounting for more than two-thirds of total economic output. Another key source of demand in the economy, business investment, continued a stretch of weakness in August, according to a separate report Friday. Orders for long-lasting equipment and machinery, a proxy for business investment, fell 0.2% last month from July and 1.7% from August 2018.

Though some economists said Friday’s report exaggerated the extent of weakness among consumers, the pullback in consumer outlays and business investment bode poorly for third-quarter economic growth.

Economists lowered their estimates of third-quarter economic growth in the wake of Friday’s data. Macroeconomic Advisers’ closely watched model for gross domestic product showed growth slowing to 1.6% in the third quarter, down from a previous estimate of 2.2%. Pantheon Macroeconomics, meanwhile, cut its forecast for third-quarter consumer-spending growth to 2.9% from 3.6%.

Other economists pointed to evidence that consumers remain on relatively solid footing. Much of the slowdown in consumer outlays in August could be traced to lower energy prices, which magnified a pullback in spending on gasoline and other energy goods. Expenditures on services slowed only modestly, while outlays on long-lasting consumer goods such as cars and furniture picked up.

“Furnishings and household durables are something that consumers tend to spend on when they feel relatively confident,” said Sonia Meskin, a senior economist at Standard Chartered.

For Ann Wingrove, president of Frankfort, Ky.-based gift shop Completely Kentucky, demand is still solid. Her store’s sales have increased about 9% this year compared with last as more customers trickle in to buy pottery and gift baskets. But tariffs are creating uncertainty about the future.

“I’m very concerned about consumer spending and how these tariffs are going to affect that,” she said.

Completely Kentucky received notifications from one vendor, a Kentucky-based silk scarf artist, suggesting the gift store should make purchases before a 25% tariff for silk from China hits. If the scarf prices go up, Ms. Wingrove fears Completely Kentucky will have to raise prices and sell fewer scarfs.

“I’m heavily staffed now so I am very concerned if our sales drop, I will have to lay people off,” she said.

Other indications point to conditions supportive of consumer spending. Incomes grew 0.4% in August from a month earlier, led by a 0.6% jump in employee compensation. Annual inflation also remained low, undershooting the Fed’s 2% target.

Consumer sentiment, a measure of household sentiment released by the University of Michigan on Friday, rose to 93.2 in September, up from August’s 89.8, though it was down 6.9% from September 2018. That represents the largest year-over-year drop since April 2016.

Richard Curtin, the survey’s chief economist, said the September numbers showed a “slow erosion” while remaining “quite favorable.”

The outlook for consumers remained cloudy, as the Trump administration hit a new array of consumer products imported from China with higher tariffs at the beginning of this month.

Trade tensions are one reason businesses took a more cautious approach in the second quarter. Nonresidential fixed investment—which reflects spending on software, research and development, equipment and structures—fell at a 1.0% rate, compared with a 4.4% rise in the first three months of the year.

Updated: 10-1-2019

ISM Manufacturing Index Slumps To Decade Low As Trade War Hits US Factories

U.S. manufacturing activity slumped to its weakest pace in more than a decade last month, a closely-watched survey indicated Tuesday, suggesting broader economic growth could slow amid a protracted trade war with China.

The ISM manufacturing activity index fell to 47.8 points, the survey noted, down from 49.1 points in August and the lowest level since June 2009. A mark below 50 points typically indicates contraction, and follows similarly weak readings in Europe and China for the month of September.

The US factory activity slide followed a warning from the World Trade Organization on global commerce earlier Tuesday, with the international body cutting its global merchandise trade growth forecast to 1.2% from 2.6% for 2019.

“The darkening outlook for trade is discouraging but not unexpected. Beyond their direct effects, trade conflicts heighten uncertainty, which is leading some businesses to delay the productivity-enhancing investments that are essential to raising living standards,” said WTO director general Roberto Azevêdo.

“Job creation may also be hampered as firms employ fewer workers to produce goods and services for export.”

Very ugly #ISM manufacturing at 47.8 – lowest since 2009. New Orders, Production, Imports, Exports and Employment are all contracting. Not very surprising considering the global manufacturing outlook. Beware it is a coincident indicator and does not track so well GDP growth.

— Christopher Nicolas Dembik (@Dembik_Chris) October 1, 2019

The employment component of the index fell 1.1 points from August to 46.3, the survey indicated, while the new orders reading edged up, to 47.3 from 47.2 points in the previous month.

The U.S. dollar index, which tracks the greenback against a basket of its global peers, pared some gains following the ISM release, but is still trading at a two-year high of 99.39.

Benchmark 10-year Treasury bond yields, meanwhile, slumped to 1.651% after trading as high as 1.75% during the early European session.

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. Fed Rate too high. They are their own worst enemies, they don’t have a clue. Pathetic!

— Donald J. Trump (@realDonaldTrump) October 1, 2019

The Dow Jones Industrial Average, meanwhile, pared earlier gains to turn negative on the session, falling 282 points to 26,635.36 points. the S&P 500 was marked 29 points lower at 2,947.95 points. 


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