US factory activity hit a decade low last month in the face of US President Donald Trump’s trade conflicts, adding to a weakening picture of the global economy.
The Institute for Supply Management (ISM), an association of purchasing managers, on Tuesday said that its manufacturing index shrank for a second straight month to 47.8 percent last month, down from 49.1 percent in August.
Any reading below 50 signals that the sector is contracting.
Investors on Wall Street responded by dumping stocks, as the manufacturing slowdown 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, closed down 343.79 points on Tuesday.
Trump’s nearly 15-month trade dispute with China and his tariffs on steel, aluminum and other products were intended to help US manufacturers.
However, his confrontational trade policies have so far had the opposite effect and helped spur the US Federal Reserve to cut interest rates last month for a second time this year.
Weakening business confidence and softening global demand have hit US factories hard, prompting pullbacks in production and employment.
Last 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 one-10th of the US 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 economy.
The US could be headed for a downturn if the ISM manufacturing index dropped even lower, TD Economics senior economist Fotios Raptis said, adding that given factory declines overseas, the global economy is also at rising risk.
“The US economy is at the precipice of an economy-wide contraction in output,” Raptis said.
On Twitter, Trump kept up his steady attacks on the Fed, which he has regularly criticized for not reducing rates more aggressively.
The president has argued that the Fed’s rate hikes last year had elevated the relative value of the dollar, which makes US goods more expensive overseas.
“As I predicted, [US Fed Chairman] Jay [Jerome] 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!”
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.
ISM’s Manufacturing Business Survey Committee head Timothy Fiore 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 US dollar or the Fed.
Weakening production is spilling over to hurt the US workforce.
Employment contracted at a faster rate last month and more factory owners are considering cutting jobs than the prior month, the survey showed.
One survey respondent said that lower demand for products ordered had prompted the company to cut 10 percent of its workforce.
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