Manufacturing sector contracts for the first time in nearly a decade

RT: Ford Explorer manufacturing 190624 3
A worker builds a 2020 Ford Explorer car at Ford’s Chicago Assembly Plant in Chicago, Illinois,
June 24, 2019. Kamil Krzaczynski | Reuters

U.S. manufacturer growth slowed to the lowest 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 on Sep. 3.

“Manufacturing companies continued to feel the impact of slowing global economic conditions,” Tim Moore, economics associate director at Markit, said in a statement on 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 new 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 contributed to the 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 on Monday and Chicago PMI on Friday.

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