A measure of U.S. manufacturing unexpectedly fell deeper into contraction, posting the weakest reading since the end of the last recession as a global slowdown and the U.S.-China trade war increasingly weigh on the sector.
The Institute for Supply Management's factory index slipped to 47.8 in September, the lowest since June 2009, according to data Tuesday. The figure missed all estimates in a Bloomberg survey that had called for an increase from August's 49.1.
Treasury yields plummeted, the dollar erased gains and U.S. stocks swung to losses after the report. The group's production gauge slipped to a 10-year low while the employment measure also dropped to the lowest since January 2016. A Labor Department jobs report Friday is expected to show private payroll growth remains subdued.
The second-straight reading below 50 -- the line separating expansion and contraction -- extends the drop from a 14-year high just over a year earlier and raised concern about a recession even after two straight interest-rate cuts from the Federal Reserve. Slowing global growth has damped demand for manufactured goods at home and abroad while trade policy uncertainty has disturbed supply chains and put hiring plans on hold.
Shortly after the report, President Donald Trump renewed his attacks on the Federal Reserve and Chairman Jerome Powell, saying they "allowed the Dollar to get so strong," hurting manufacturers. Fed officials "don't have a clue" and are "pathetic," the president tweeted.
Timothy Fiore, head of the institute's Manufacturing Business Survey Committee, pointed to the 2.3 percentage point drop in a measure of new export orders, its lowest level since March 2009. The institute's survey also includes comments from its members, and three of the 10 manufacturers quoted said that the tariffs are hurting their businesses. None blamed a strong dollar or the Fed. Most economists also point to the trade fight for manufacturers' problems.
A separate U.S. manufacturing purchasing managers' index showed improvement Tuesday. The gauge from IHS Markit rose to 51.1 from 50.3, with its employment index at the best reading since May and new orders up from the previous month. Analysts expected a level of 51, equal to the preliminary reading.
Recent manufacturing data "make you worried that this could spread from the manufacturing sector to the services sector," said Torsten Slok, chief economist at Deutsche Bank AG. "When the employment report comes on Friday we will have an even better idea on whether this is just a manufacturing issue or whether this is something that not only continues to deteriorate but is also spreading."
The group said just three of 18 industries reported growth in September, the lowest total since April 2009. Contracting industries were led by apparel, leather and allied products; printing and related support activities; and wood products. The only expansions were in miscellaneous manufacturing; food, beverage and tobacco products; and chemical products.
The institute's measure of new orders, considered a leading indicator of downturns, edged up slightly to 47.3 from an August reading that matched the weakest of this expansion. The production index declined to 47.3, while the inventories gauge fell to 46.9, the lowest since late 2016.
The institute's trade gauges showed American producers are struggling with head winds from abroad as well as the effects of a resurgent dollar. The measure of export orders, a proxy for overseas demand, fell to 41, the lowest level since March 2009, while the imports index remained in contraction.
While manufacturing makes up just over a tenth of gross domestic product, slowing in the sector combined with cooler business investment and economic growth puts the longest-ever American expansion in a more precarious position.
Supplier deliveries was the only sub-index above 50, which for that gauge indicates slower deliveries. A Fed measure of production already signaled U.S. manufacturing is in a recession when it contracted in the first half of this year.
The pullback in the employment gauge, to 46.3 from 47.4, comes after economist projections that the main monthly Labor Department report Friday will show limited manufacturing payroll growth. Economists forecast a 3,000 gain in factory employment for a second month.
Elsewhere, reports this week have shown China's factory sector contracted for a fifth month in September. The euro area's manufacturing slumped as German factories experienced their worst month since the depths of the financial crisis.
The latest data adds to a growing pile of evidence of further dimming the global economic outlook. The International Monetary Fund, already projecting a 3.2% growth pace this year that would be the slowest since the financial crisis, will release an updated estimate later this month as policymakers from across the world gather in Washington for the fund's annual meeting.
A global recession remains unlikely, even as growth slows, most economists say. But the dangers are clearly mounting, threatening to spread from the factory floor to households in many major economies.
Information for this article was contributed by Reade Pickert, Chris Middleton and Craig Trudell of Bloomberg News; by Bani Sapra of The Associated Press; and by Peter S. Goodman of The New York Times.
Business on 10/02/2019
Print Headline: Manufacturing gauge hits a low