The recession in US manufacturing worsened last month as plunging global demand and trade frictions drove activity to its lowest point since the Great Recession, according to an industry survey released Tuesday.
The unexpected drop in the Institute for Supply Management’s closely-watched index was another worrying sign for the US economy, amid President Donald Trump’s trade war with China, slowing consumer spending and weaker sales of major factory-made goods.
The bad news knocked the wind out of Wall Street’s sails, with the Dow Jones Industrial Average closing down 1.3 percent.
Trump blamed the Federal Reserve, rather than his own trade wars, accusing the central bank and Fed Chair Jerome Powell of hurting factory output by allowing the US dollar to strengthen, by failing to cut interest rates aggressively, which puts American exports at a disadvantage.
“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,” Trump said on Twitter in yet another attack on the independent institution.
“They are their own worst enemies, they don’t have a clue. Pathetic!”
ISM’s manufacturing index fell 1.3 points to 47.8 percent in September, the lowest point since June 2009 and showing continued contraction. Any reading above 50 indicates growth.
Economists had expected the index to recover to above 50 percent. Instead, manufacturing recorded its sixth straight monthly decline and its second month in contraction.
– ‘Warning signs are clear’ –
Timothy Fiore, chair of ISM’s manufacturing survey, told reporters the index was unlikely to see a meaningful recovery so long as demand remained low.
“Clearly without new orders picking up, the number’s going to stay down,” he said. “I think we’re sitting in a position here where we’re at a level that will probably continue.”
There was little sign among survey respondents that a three-week nationwide strike by auto workers or recent gyrations in oil prices had caused difficulties, he added, although that could change if the strike at General Motors persists.
Many of the comments from survey participants point to Trump’s trade war with China, noting that the retaliatory tariffs are hurting business and undermining confidence, despite comments from administration officials claiming Americans have not been impacted by the dispute.
A major concern was the computers and electronics sector, Fiore said.
“That has been one of the primary engines of growth for the last three years and it’s now in a contraction mode,” he said.
Total new orders for manufactured goods were at their lowest since 2012. Export orders, which feed into overall orders, fell to 41 percent, their worst month since March of 2009.
Manufacturing represents around a tenth of overall US GDP, meaning the sector can contract without dragging the wider economy into a recession, as it has in the past.
But trouble for factories is often an early warning, economists say.
Of 18 industries surveyed, three experienced growth — miscellaneous goods, food and chemical products — and even they reported growth was weak to flat.
In the miscellaneous category, a respondent said growth “has slowed dramatically,” while in fabricated metals, a sector enjoying robust trade protection from the Trump administration, a company said the market was “slowing even more than… normal” for the fourth quarter.
Ian Shepherdson of Pantheon Macroeconomics said the ISM report was “pretty awful.”
“This survey is a not consistent with recession across the whole economy,” he said in an analysis.
“But the warning signs here are clear enough. The trade war is wreaking havoc, to the point where the incipient upturn in manufacturing in China is not transmitting, at all, to the US.”