INSUBCONTINENT EXCLUSIVE:
By Reade PickertA measure of US manufacturing unexpectedly fell deeper into contraction, posting the weakest reading since the end of the
last recession as a global slowdown and the U.S.-China trade war increasingly weigh on the sector.
The Institute for Supply Management’s
factory index slipped to 47.8 in September, the lowest since June 2009, according to data Tuesday
The figure missed all estimates in a Bloomberg survey that had called for an increase from August’s 49.1.
Treasury yields plummeted and
stocks swung to losses on the report
The group’s production gauge slipped to a 10-year low while the employment measure also dropped to the lowest since January 2016
That’s a worrying sign before a jobs report Friday that’s forecast to show private payroll growth remains subdued.
The second straight
reading below 50 -- the line separating expansion and contraction -- extends the drop from a 14-year high just over a year earlier and
raised concern about a recession even after two straight interest-rate cuts from the Federal Reserve
Slowing global growth has damped demand for manufactured goods at home and abroad while trade policy uncertainty has disturbed supply chains
and put hiring plans on hold.
The report was “quite weak, consistent with significant export-led weakening in manufacturing continuing,”
Jim O’Sullivan, chief U.S
economist at High Frequency Economics Ltd., said in a note
But it may still be too early for alarm, as “so far at least, the less-export-oriented non-manufacturing parts of the economy have
remained reasonably solid,” he wrote.
The group said just three of 18 industries reported growth in September, the lowest total since
Contracting industries were led by apparel, leather and allied products; printing and related support activities; and wood products
The only expansions were in miscellaneous manufacturing; food, beverage and tobacco products; and chemical products.
ISM’s measure of new
orders, considered a leading indicator of downturns, edged up slightly to 47.3 from an August reading that matched the weakest of this
The production index declined to 47.3, while the inventories gauge fell to 46.9, the lowest since late 2016.
ISM’s trade gauges showed
American producers are struggling with headwinds from abroad as well as the effects of a resurgent dollar
The measure of export orders, a proxy for overseas demand, fell to 41, the lowest level since March 2009, while the imports index remained
in contraction.
The overall gauge will probably continue to be subdued unless there’s a pickup in new orders, Timothy Fiore, chair of
ISM’s manufacturing survey committee, told reporters on a call
“The single biggest way to do that is to open up the new export orders,” he said
“There needs to be some relaxation here in trade.”
Precarious PositionWhile manufacturing makes up just over a tenth of gross domestic
product, slowing in the sector combined with cooler business investment and economic growth puts the longest-ever American expansion in a
Greater weakness may threaten President Donald Trump’s re-election prospects in 2020.
Shortly after the report, Trump renewed his attacks
on the Fed and Chairman Jerome Powell, saying they “allowed the Dollar to get so strong,” hurting manufacturers
Fed officials “don’t have a clue” and are “pathetic,” the president tweeted.
Supplier deliveries was the only sub-index above 50,
which for that gauge indicates slower deliveries
A Fed measure of production already signaled U.S
manufacturing is in a recession when it contracted in the first half of this year.
The pullback in the employment gauge, to 46.3 from 47.4,
comes amid economist projections that the main monthly Labor Department report Friday will show limited manufacturing payroll growth
Economists forecast a 3,000 gain in factory employment for a second month.
Weak WorldElsewhere, reports this week have shown China’s
factory sector contracted for a fifth month in September
The euro area’s manufacturing slumped as German factories experienced their worst month since the depths of the financial crisis.
The
latest disappointing data add to a growing pile of evidence of further dimming in the global economic outlook
The International Monetary Fund, already projecting a 3.2% growth pace this year that would be the slowest since the financial crisis, will
release an updated estimate later this month as policy makers from across the world gather in Washington for the fund’s annual
meeting.
The ISM’s index of prices paid remained below 50, suggesting muted inflationary pressures
Order backlogs declined, while the customer inventories index increased.
U.S
factories could be set to take another hit
The United Auto Workers union called its first national strike against General Motors Co
since 2007 midway through the month, halting production at the carmaker’s dozen assembly plants and 22 stamping, powertrain and parts
The work stoppage has spilled over to effect suppliers including American Axle - Manufacturing Holdings Inc., which has temporarily laid off
manufacturing purchasing managers’ index showed improvement on Tuesday
The gauge from IHS Markit rose to 51.1 from 50.3, with employment at the best reading since May and new orders up from the prior month
Analysts expected a level of 51, equal to the preliminary reading.
