United States factory activity unexpectedly contracted in August for the first time in three years as shrinking orders, production and hiring pushed a widely followed measure of manufacturing to its lowest level since January 2016. 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 Tuesday showed. Figures below 50 signal the manufacturing economy is generally contracting. The group’s gauge of new orders dropped to a more than seven-year low, while the production index shrank to the weakest level since the end of 2015.
- The latest downturn underscores how slowing global growth and an escalating U.S. trade war with China are taking an even bigger toll on domestic producers. Manufacturing is technically already in a recession in the U.S. with a Federal Reserve measure of output declining in two consecutive quarters. The malaise is consistent with developments in the sector around the world. By one measure, global factory activity has declined 15 straight months and contracted in the last three.
- The ISM’s measure of new orders, which are tracked by some as a leading indicator of a downturn, declined to 47.2. It was the first time since December 2015 that the gauge fell below 50. ISM’s production gauge also sank below that mark, to 49.5 in August from 50.8.
- The slump in demand and output spilled over into the labor market as the ISM’s gauge of factory employment fell to 47.4, the lowest level since March 2016. That suggests this Friday’s employment report will show weakness in August manufacturing payrolls, which were surprisingly robust the previous two months.
- A measure of export orders, a proxy of overseas demand, sank to 43.3, the lowest reading since April 2009 during the depths of the last recession.