US Manufacturing contracting for first time since 2009

Posted on: August 22, 2019 at 16:21:30 CT

The decline is a sign that manufacturers are starting to feel the effects of the ongoing trade war.

A contraction in the manufacturing sector can have a large ripple effect across the economy. Factories that produce fewer goods tend to cut back on shipping and distribution, which affects transportation companies, warehouses, seaports, airports and more. (Luke Sharrett/Bloomberg)
By Jonnelle MarteAugust 22 at 4:25 PM
The prolonged trade war between the United States and China is taking a toll on the manufacturing sector, which contracted for the first time since 2009, data show.

The U.S. manufacturing purchasing managers’ index (PMI) fell to 49.9 in August from 50.4 in July, according to IHS Markit. It is the first time the closely watched indicator has fallen below 50 since September 2009.

The decline is a sign that manufacturers are starting to feel the effects of the ongoing trade war. Sales of U.S. exports decreased at the fastest pace since August 2009, according to the report. When exports fall, manufacturers typically respond by reducing inventories and cutting production. Over time, that gloominess could lead manufacturers to trim jobs.

“Manufacturing companies continued to feel the impact of slowing global economic conditions,” Tim Moore, associate director of economics for IHS Markit, said in a statement. “The continued slide in corporate growth projections suggests that firms may exert greater caution in relation to spending, investment and staff hiring during the coming months.”

The PMI index is based on a survey of manufacturers about production, output, orders, inventory, pricing and other factors. A score below 50 on the index signifies the sector is contracting.

“If manufacturing isn’t in a recession, it is pretty close,” said Mark Zandi, chief economist for Moody’s Analytics.

A contraction in manufacturing can have large ripple effects across the economy, Zandi said. Factories that produce fewer goods tend to cut back on shipping and distribution, which affects transportation companies, warehouses, seaports and airports, he said.

Struggling manufacturers also have less need for general business services such as accounting, media and advertising. And when factories start reducing staff, those workers cut back on spending, hurting retailers and service providers, Zandi said.

Edited by Ace at 16:22:12 on 08/22/19