Manufacturing hits a low

Photo: The Canadian Press

U.S. factory activity hit a decade low last month in the face of President Donald Trump's trade conflicts, adding to a weakening picture of the global economy.

The Institute for Supply Management, an association of purchasing managers, said Tuesday that its manufacturing index shrank for a second straight month to 47.8% in September, down from 49.1% in August. Any reading below 50 signals that the sector is contracting.

Investors on Wall Street responded by dumping stocks, given that the slowdown in manufacturing fanned fears that growth might be slowing more than expected and could squeeze corporate earnings. The Dow Jones Industrial Average, which had been up early in the day, was down about 300 points in mid-afternoon trading.

Trump's nearly 15-month trade war with China and his tariffs on steel, aluminum and other products were intended to help U.S. manufacturers. But his confrontational trade policies have so far had the opposite effect and helped spur the Federal Reserve to cut interest rates in September for a second time this year.

Weakening business confidence and softening global demand have hit American factories hard, prompting pullbacks in production and employment. This month's ISM measure reported the lowest level of manufacturing activity since June 2009, the last month of the Great Recession.

Manufacturing makes up only about a tenth of the U.S. economy, but analysts see the survey as a warning sign about the trade conflict. Because the latest round of Trump tariffs on Chinese imports affects many consumer goods, economists say weakening business sentiment could spill over to slow consumer spending, which supports the bulk of the U.S. economy.

Fotios Raptis, a senior economist at TD Economics, suggested that the U.S. economy could be headed for a downturn if the ISM manufacturing index dropped even lower. And given factory declines overseas as well, the global economy is also at rising risk.

"The U.S. economy is at the precipice of an economy-wide contraction in output," Raptis said.

The World Trade Organization said Tuesday that it expects volumes of traded goods to rise 1.2% this year, its weakest pace since 2009.

In addition, surveys of purchasing firms compiled by the data firm IHS Markit point toward declines in manufacturing in South Korea, Japan, Indonesia and Malaysia, all of them export-reliant countries. The U.K. factory sector has also remained in negative terrain for five consecutive months, its longest stretch since the financial crisis.

On Twitter, Trump kept up his steady attacks on the Fed, which he has regularly criticized for not reducing rates more aggressively. The president in particular has argued that the Fed's rate hikes last year had elevated the relative value of the dollar, which makes U.S. goods more expensive overseas.

"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. "Fed Rate too high. They are their own worst enemies, they don't have a clue. Pathetic!"