ISM Manufacturing Index Remains Below Neutral In September

U.S. Factory Contraction Got Worse in September

The trade war is also hurting economies around the world.

And though a lot of this is probably due to a fundamental roll-over in the USA business cycle, the big concern for U.S. manufacturers, according to the ISM Report, is clear: "Global trade remains the most significant issue". "Overall, sentiment this month remains cautious regarding near-term growth", said Timothy Fiore, chair of ISM.

The Institute for Supply Management's purchasing managers' index fell to 47.8% in September - the lowest level since June 2009 and a contraction. Jobs created fell to 135,000 in September, while there was also a massive downward revision to the August number.

Wall Street stocks tumbled on Tuesday as a dismal report on manufacturing exacerbated fears that the slowing United States economy could tip into recession.

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.

The overall index number was bad, but more worrisome is the report's drop in factory orders of exports, said Torsten Slok, chief economist at Deutsche Bank.

"The U.S. economy is at the precipice of an economy-wide contraction in output", Raptis said. These industries are food, beverage and tobacco products, miscellaneous manufacturing, and chemical products.

"A sub-50 ISM does not imply overall recession in the US - a sub-44 ISM would". What's the strategy now?


The other narrative, repeated ad nauseam by analysts in the reporting today on the manufacturing downturn, is that it's the trade war that's driving this. One survey respondent said that lower demand for products ordered had prompted the company to cut 10% of its workforce. Any cracks in that sector suggest the USA economy is getting closer to falling into recession. Now Trump has to campaign against a similarly weak backdrop.

To make matters worse, the USA yesterday won approval to slap additional tariffs on imported European goods. The export order portion of the index hit 41.0, the third straight month of contraction. Many European economies are teetering on the verge of recession and China's economy has weakened as the trade fight has intensified, drying up demand for US products and making it more expensive to import some parts from China.

While any reading above 50 indicates growth, the September level was the lowest for the ISM services index since August of 2016.

The strike at General Motors also likely contributed to the worsening manufacturing picture in September, when 46,000 workers stopped working, forcing the major automaker to halt production at its facilities. But it may still be too early for alarm, as "so far at least, the less-export-oriented non-manufacturing parts of the economy have remained reasonably solid", he wrote.

Analysts warn that could change, however, if the "we're hiring" signs that have been so prevalent in many communities begin to go away and Americans think their job prospects are declining.

"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 said on Twitter.

The Fed has lowered interest rates for the first time in a decade in an effort to counteract the harm of Trump's trade war.

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