The key US manufacturing sector last month unexpectedly hit a two-year low amid a worrying slump in demand and weak exports, a private survey showed on Thursday.
While the Institute for Supply Management’s (ISM) monthly report showed that US industry was still expanding, analysts said the monthly slowdown showed that activity had unmistakably fallen a notch below prior trends.
Wall Street has tumbled over the past few months as investors begin to fear that the year could see weaker growth or even a recession and the news accelerated a sell-off on major stock market indices on Thursday.
The ISM Manufacturing Index fell to 54.1 points, down 5.2 points from November last year and the lowest level since November 2016.
Economists had called for a result of 57.8 and any level above 50 indicates growth.
The survey showed slowdowns in production, deliveries and employment, but the largest dip was in orders, which fell 11 points from November and dragged the overall index lower.
“I think generally there’s an overall softening in the global market and we’re being impacted by the export piece of it,” ISM manufacturing survey committee chairman Timothy Fiore told reporters.
“I’m not going to say one point is going to provide a trend, but we had been bouncing across the top and now we’ve clearly stepped down a level and we’ll see what January brings,” Fiore said.
Respondents said that sales to China and Europe slowed as the markets exchanged tit-for-tat tariffs with Washington last year, he said.
Six of 18 industries in the survey contracted, including fabricated metals, a sector that was hit hard by US President Donald Trump’s trade war.
Fiore said that the December results “came out of left field,” given that a twice-yearly survey released last month showed continued optimism.
“There was no real indication that this was brewing,” he said.
A survey respondent in the computer and electronics sector said that growth “appears to have stopped” while companies work to adjust to the trade war with China.
About 35 percent of general comments were related to tariffs, in line with prior months, Fiore said.
The ISM numbers added to the picture of an economy that was moderating after the “sugar high” of the 2017 tax cuts, economist Joel Naroff said.
“The so-called ‘Trump Bump’ that was seen in the markets and manufacturing has been largely wiped out,” he said in a client note.
However, this more likely points to a return to normal growth rather than a recession, Naroff said.
“We seem to be replacing the irrational exuberance of the election and tax cuts with an irrational despondence of a slowing economy,” he added.
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