Reuters is reporting that U.S. manufacturing tumbled to a more-than ten-year low in September. Why? According to Reuters, the month’s trade tensions weighed on exports, increasing market fears of a sharp slowdown in economic growth in the third quarter.

Quote from the Institute for Supply Management (ISM) Tuesday (October 1, 2019) / “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.”

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 tweeted 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 President said.

1.3 points | The ISM index of national factory activity dropped to a reading of 47.8 last month, the lowest level since June 2009, when the Great Recession was ending.

50 | A reading below 50 indicates a contraction in the manufacturing sector, which accounts for about 11% of the U.S. economy.

“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.

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.

The ISM said comments from manufacturers “reflect a continuing decrease in business confidence,” and also noted that “global trade remains the most significant issue.”

Export orders plunge

A measure of export orders plunged 2.3 points to 41.0 in September, the weakest since March 2009.

The survey’s factory employment index dropped to 46.3 last month, the lowest in more than 3-1/2 years, from 47.4 in August.

Factory payrolls contracted in September after increasing by a paltry 3,000 jobs in August.

The ISM said only three industries – miscellaneous manufacturing, food, beverage and tobacco products, and chemical products reported growth last month.

“…the trade tariffs designed to bring factories back from overseas, are actually shutting down production at existing plants here in the U.S.” said Chris Rupkey, chief economist at MUFG in New York.

Photos | GettyImages

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