Manufacturing sinks to decade-low, stoking economic fear |

Manufacturing sinks to decade-low, stoking economic fear

Associated Press
Photo technician David Boxx works on updating an electrical system on a Caterpillar machine at the Puckett Machinery Company in Flowood, Miss. On Tuesday, Oct. 1, the Institute for Supply Management, a trade group of purchasing managers, issues its index of manufacturing activity for September.
A Puckett Machinery Company technician walks past a new heavy duty Caterpillar excavator that awaits modification at Puckett Machinery Company in Flowood, Miss. On Tuesday, Oct. 1, the Institute for Supply Management, a trade group of purchasing managers, issues its index of manufacturing activity for September.

WASHINGTON — U.S. factory activity hit a decade low last month in the face of President Donald Trump’s trade conflicts, adding to a weakening picture of the global economy.

The Institute for Supply Management, an association of purchasing managers, said Tuesday that its manufacturing index shrank for a second straight month to 47.8% in September, down from 49.1% in August. Any reading below 50 signals that the sector is contracting.

Investors on Wall Street responded by dumping stocks, given that the slowdown in manufacturing fanned fears that growth might be slowing more than expected and could squeeze corporate earnings. The Dow Jones Industrial Average, which had been up early in the day, was down about 300 points in mid-afternoon trading.

Trump’s nearly 15-month trade war with China and his tariffs on steel, aluminum and other products were intended to help U.S. manufacturers. But his confrontational trade policies have so far had the opposite effect and helped spur the Federal Reserve to cut interest rates in September for a second time this year.

Weakening business confidence and softening global demand have hit American factories hard, prompting pullbacks in production and employment. This month’s ISM measure reported the lowest level of manufacturing activity since June 2009, the last month of the Great Recession.

Manufacturing makes up only about a tenth of the U.S. economy, but analysts see the survey as a warning sign about the trade conflict. Because the latest round of Trump tariffs on Chinese imports affects many consumer goods, economists say weakening business sentiment could spill over to slow consumer spending, which supports the bulk of the U.S. economy.

Fotios Raptis, a senior economist at TD Economics, suggested that the U.S. economy could be headed for a downturn if the ISM manufacturing index dropped even lower. And given factory declines overseas as well, the global economy is also at rising risk.

“The U.S. economy is at the precipice of an economy-wide contraction in output,” Raptis said.

The World Trade Organization said Tuesday that it expects volumes of traded goods to rise 1.2% this year, its weakest pace since 2009.

In addition, surveys of purchasing firms compiled by the data firm IHS Markit point toward declines in manufacturing in South Korea, Japan, Indonesia and Malaysia, all of them export-reliant countries. The U.K. factory sector has also remained in negative terrain for five consecutive months, its longest stretch since the financial crisis.

On Twitter, Trump kept up his steady attacks on the Fed, which he has regularly criticized for not reducing rates more aggressively. The president in particular has argued that the Fed’s rate hikes last year had elevated the relative value of the dollar, which makes U.S. goods more expensive overseas.

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

Trump has previously insisted that the Fed slash its benchmark rate to zero. Economists warn, though, that this would risk raising alarm among consumers and businesses that a recession could be near. The Fed’s rate cuts have yet to cause the dollar to weaken because other central banks have also cut rates even lower.

The ISM report suggests that Trump’s tariffs, and other nations’ retaliatory tariffs, have played a far greater role than the Fed in dampening manufacturing activity.

Timothy Fiore, head of ISM’s Manufacturing Business Survey Committee, pointed to the 2.3 percentage point drop in a measure of new export orders, its lowest level since March 2009. The ISM survey also includes comments from its members, and three of the 10 manufacturers quoted said that the tariffs are hurting their business. None blamed a strong dollar or the Fed. Most economists also point to the trade fight for manufacturers’ problems.

“Simmering trade tension is the obvious culprit for the manufacturing weakness,” said Eric Winograd, senior U.S. economist at AllianceBernstein.

“The trade war is wreaking havoc, to the point where the incipient upturn in manufacturing in China is not transmitting, at all, to the U.S.,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Weakening production is spilling over to hurt the American workforce. The ISM survey indicates that more factory owners are considering cutting jobs than the prior month. Employment contracted at a faster rate in September. One survey respondent said that lower demand for products ordered had prompted the company to cut 10% of its workforce.

Some economists also suggested that the ongoing union worker strike at General Motors could have played a role in a slower automotive market.

“That strike has now begun to affect production at suppliers too,” said Paul Ashworth, chief US economist at Capital Economics. When the strike ends, we would expect the manufacturing sector surveys to rebound too.”

Categories: Business | Wire stories
TribLIVE commenting policy

You are solely responsible for your comments and by using you agree to our Terms of Service.

We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.

While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.

We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers

We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.

We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.

We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.

We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.