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Manufacturing PMI data contracts, defying Trump factory pledge

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American manufacturing contracted for the first time in a decade in August, piling onto concerns about the economy a week after a key recession warning flashed.

IHS Markit said Thursday its preliminary gauge of domestic factory activity slipped to 49.9 this month, the weakest reading since September 2009, and down from 51.7 in July. Economists surveyed by the Wall Street Journal had forecast a reading just slightly above 50, the threshold that signals expansion versus contraction.

The sharper-than-expected decline in August mainly reflected weaker demand for new orders, the survey said. Manufacturing companies saw the sharpest downturn in order books and export sales in 10 years, dragging down new business for the second time in the past four months.

“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,” said Tim Moore, the economics associate director at IHS Markit. “Survey respondents commented on a headwind from subdued corporate spending as softer growth expectations at home and internationally encouraged tighter budget setting.”

Thursday’s reading was likely to further add to concerns about the broader economy. The yield curve inverted last Wednesday for the first time since before the global financial crisis in 2007, rattling financial markets as investors saw it as a signal of a potential recession ahead.

A shrinking manufacturing sector could alter the political calculus for President Donald Trump as he campaigns for re-election. Trump has long pledged to revitalize the US manufacturing sector, but slower activity abroad and his escalating trade fights have presented challenges.

Dozens of manufacturers have testified against tariffs to the administration, warning that they would raise costs and disrupt supply chains. Reuters reported Thursday that manufacturing jobs have cooled the most in states critical for the Trump campaign including Pennsylvania, Ohio and Wisconsin.

The White House has increasingly looked into ways to juice the economy in recent weeks. Trump, whose polling on the economy has generally been stronger than on his general performance in office, has both admitted his trade disputes could cause a recession and also disputed broader concerns about growth.

“The economy is doing really well,” Trump tweeted Thursday morning. “The Federal Reserve can easily make it Record Setting!”

Thursday’s results could embolden expectations for the Federal Reserve to further lower interest rates in September. In addition to trade tensions and below-target inflation, the central bank has cited slower factory activity as a strain on the economy.

The Kansas City Fed is scheduled to release its manufacturing survey later Thursday.

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