Here’s a question for you. Given the escalation of trade tensions with China and the increased uncertainty surrounding the global economy, how on earth were economists expecting activity in the US manufacturing sector to increase in August? The reality is that the manufacturing sector was not only weaker than expected, it contracted for the first time in three years! While economists were expecting the headline ISM Manufacturing index to increase from 51.2 up to 51.3, the actual reading came in at 49.1 for the fifth straight monthly decline in the index. The last time the ISM Manufacturing Index declined for five months straight was in January 2016 which also happens to be the last time it was lower than it is now.
The internals of this month’s report were also very weak. For starters, we saw the most flips from growth (>50) to contraction (<50) in a monthly report since August 2016. On top of that, just one category in the report – Supplier Deliveries- is above 50. The last time there was such broad-based weakness was in June 2009! In the case of Production, current levels are the weakest since November 2015, but for New Orders (first chart below), things haven’t been this weak since April 2009. The same goes for Export Orders and Import Orders (second and third charts below). If you think that the ongoing trade war with China isn’t impacting global trade, think again. Finally, ahead of the August Jobs report on Friday, the Employment Index (bottom chart) of this month’s report fell to 47.4 which is the lowest level since January 2016. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.