US manufacturing index plunges to lowest level in decade

WATERBURY CT- OCTOBER 21 The remaining interior of a shuttered factory connected to the brass industry stands in what was once a vibrant manufacturing city

The US manufacturing sector slowed again in September, falling to its lowest level since 2009, amid trade war worries, according to an industry survey released on Tuesday. A reading below 50 indicates contraction in the manufacturing sector, which accounts for about 11% of the USA economy.

Investors on Wall Street reacted immediately, as the reported slowdown in manufacturing fanned fears of weakening global growth.

Global equity markets fell sharply on Wednesday with the Dow Jones Industrial Average declining 494 points bringing its two-day decline to more than 800 points.

But President Trump instead is putting the blame on the federal reserve - saying Fed policy - not trade policy - is hurting USA manufacturers. The ISM employment gauge for the sector showed the lowest reading since January 2016, primarily driven by a lack of demand.

But with sub-50 PMI readings in both July, at 49.1, and August, at 47.8 (the lowest reading since June 2009's 46.3), manufacturing output has drifted off the healthy track it had been on for 35 consecutive months through June 2019.

The report was "quite weak, consistent with significant export-led weakening in manufacturing continuing", Jim O'Sullivan, chief USA economist at High Frequency Economics Ltd., said in a note. He added that coupled with factory declines overseas, the global economy was also at risk next year.

Analysts noted that investors have valid reasons to be concerned about the USA economy.

President Donald Trump blamed the Federal Reserve for US manufacturing's difficulties, arguing that the Fed's rate hikes previous year pushed up the value of the dollar, which makes USA goods more expensive overseas.

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In a Twitter post on Tuesday, Trump attempted to blame the Federal Reserve for any weakness in the manufacturing sector. They are their own worst enemies, they don't have a clue.

While companies that make machinery cited softening demand and reduced backlogs, food, beverage and tobacco producers said Chinese tariffs are hurting their businesses, the ISM survey showed. Most economists also point to the trade fight for manufacturers' problems.

"Obviously weak manufacturing does have a correlation with recessions and that is something you have to respect, it shouldn't just be written off or ignored", Ciovacco said. "The trade war is wreaking havoc, to the point where the incipient upturn in manufacturing in China is not transmitting, at all, to the United States", said one analyst to IBT.

The WTO said on Tuesday that it now expects global merchandise trade to increase by 1.2 percent this year, compared with its April estimate of 2.6 percent.

Looking ahead, he explained this creates a hard situation, in that it is unlikely any changes in interest rates will boost manufacturing output, nor will any type of quantitative easing belt-tightening moves. "Overall, sentiment this month remains cautious regarding near-term growth", said Timothy Fiore, chair of ISM. The work stoppage has spilled over to effect suppliers including American Axle & Manufacturing Holdings Inc., which has temporarily laid off staff. The ISM survey indicates that more factory owners are considering cutting jobs than the prior month.

Although this is only the second straight month in which the index has been below 50 percent, it's the sixth straight month that it's declined.

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

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