US manufacturing shrinks for first time in three years

General Motors employees work on the chassis line as they build the frame power train and suspension onto the truck’s body on June 12 at the Flint Assembly Plant in Flint Mich. Jake May  The Flint Journal files

US manufacturers must be asking themselves just now: If President Trump is our friend, what would an enemy look like?

New tariffs on Chinese goods took effect over the USA holiday weekend.

The manufacturing sector in the United States contracted last month for the first time in three years, an industry report said Tuesday. Consumption (measured by the Production and Employment Indexes) contracted at higher levels, contributing the strongest negative numbers (a combined 5.6-percentage point decrease) to the PMI, driven by a lack of demand. The Dow erased 1.08 percent, the S&P 500 was down 0.69 percent, and the Nasdaq lost 1.11 percent.

The Institute for Supply Management's purchasing managers index fell to 49.1 in August, weaker than all forecasts in a Bloomberg survey of economists, data released on Tuesday (Sept 3) showed.

The report's key metric, the PMI, fell 2.1% to 49.1 (a reading of 50 or higher indicates growth), following a 0.5% decrease in July and 0.4%, 0.7%, and 2.7% declines in June, May, and April, respectively.

A global softening in demand, worsened by an increasingly high-risk trade war between the USA and China, appears to be hurting American manufacturers. More than half of the public comments from companies surveyed by ISM pointed to economic uncertainty as a drag on their businesses.

ISM reported that nine of the 18 manufacturing sectors it tracks saw growth in August, including: Textile Mills; Furniture & Related Products; Food, Beverage & Tobacco Products; Wood Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Machinery; Miscellaneous Manufacturing; and Chemical Products.

"There is little better evidence of the cost to the domestic economy stemming from the Trump administration's policies than the sharp decline in new export orders that coincides with Trump's increased tariffs announced in August", Holt said.

"This is a grim report", said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Tuesday's ISM data, compiled from a monthly survey of purchasing and supply executives across the US, added to a picture of softening activity in USA manufacturing. Caterpillar, which is seen as an American bellwether when it comes to the impact of global trade and construction, fell 1.8%.

The 30-year bond last rose 7/32 in price to yield 1.9639%, down from 1.973% late on Friday. -China trade war continued to cause uncertainty. While surveys of purchasing managers showed mixed results in China, manufacturing activity declined across Japan, Taiwan, and South Korea. Those tariffs are targeted at consumer goods and will likely raise prices for American consumers. US markets were closed on Monday for Labor Day. The United States now joins the euro zone, Japan, the United Kingdom and China, which have always been experiencing a contraction in factory activity.

Anemic demand for U.S. goods, with persistent drops in export orders, produced a "notable decrease" in business confidence, as indicators for production, employment and order backlogs all fell, according to the Institute for Supply Management.

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