U.S. manufacturing activity tumbled to a more than 10-year low in September as lingering trade tensions weighed on exports, further heightening financial market fears of a sharp slowdown in economic growth in the third quarter, reports Trend referring to Reuters.
The survey from the Institute for Supply Management (ISM) on Tuesday came on the heels of data last week showing a cooling in consumer spending in August. The economy’s fading fortunes have been attributed to the Trump administration’s 15-month trade war with China, which has sapped business confidence and undermined manufacturing.
Ironically, manufacturing has borne the brunt of the trade tariffs, which the White House says are necessary to protect industries from what it says is unfair foreign competition. President Donald Trump blames the Federal Reserve, in particular Chair Jerome Powell, for the manufacturing sector’s malaise.
“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 wrote on Twitter shortly after the ISM survey was published. “Fed Rate too high. They are their own worst enemies, they don’t have a clue. Pathetic!”
The ISM said its index of national factory activity dropped 1.3 points to a reading of 47.8 last month, the lowest level since June 2009, when the Great Recession was ending. A reading below 50 indicates contraction in the manufacturing sector, which accounts for about 11% of the U.S. economy.
September’s reading marked the second straight month that the index fell below the 50 threshold. The index has now declined for six consecutive months and is in stark contrast with a rebound in the so-called hard data like industrial production, which showed output at factories rising in August.
While the ISM index needs to drop below the 42.9 level to signal a recession in the broader economy, economists said its continued slide posed a huge risk to the longest economic expansion in history.
“This is serious,” said Torsten Sløk, chief economist at Deutsche Bank Securities in New York. “There is no end in sight to this slowdown, the recession risk is real.”
The manufacturing slump could force the Fed to cut interest rates again in October. The Fed cut interest rates last month after lowering borrowing costs in July for the first time since 2008 to keep the expansion, now in its 11th year, on track.
Powell said last month trade policy tensions, which “have waxed and waned, and elevated uncertainty is weighing on U.S. investment and exports.” Powell said Fed contacts had told policymakers that trade policy uncertainty “has discouraged them from investing in their businesses.”
The downturn in manufacturing in the United States mirrors similar patterns in the euro zone, Japan, the United Kingdom and China.
The World Trade Organization cut its forecast for growth in global trade this year by more than half on Tuesday and warned further rounds of tariffs and retaliation, slowing economies and a disorderly Brexit could squeeze it even more.