US manufacturing activity contracted in August

US manufacturing activity contracted in August

Manufacturing activity shifted into reverse in August for the first time in three years, as factory owners adjusted to the ongoing trade wars.

U.S. President Donald Trump said on Tuesday that trade talks between the United States and China were going well, but warned he would be "tougher" in negotiations if the discussions drag on until his second term.

So far, the broader economy has been propped up by robust consumer spending.

Later in the day, the Manufacturing PMI reports published by the IHS Markit and the Institue for Supply Management (ISM) both confirmed the contraction in the sector's business activity to remind investors of a possible recession in the U.S. and triggered an intense flight-to-safety in markets. A reading below 50 indicates contraction in manufacturing, which accounts for about 12% of the USA economy.

Initial strength that propelled the dollar to a more than two-year peak faded after a private report showed that the U.S. manufacturing sector in August contracted for the first time since 2016. "Overall, sentiment this month declined and reached its lowest level in 2019". 3, the Institute for Supply Management, a trade group of purchasing managers, issues its index of manufacturing activity for August. And the backlog of orders number contracted to 46.3 but is not as strong as prior months...that's a slight positive. The U.S. -China trade tensions also coincide with diminishing stimulus from last year's $1.5 trillion tax cut package.

The report was released amid ongoing trade war between the US and China by slapping tariffs on hundreds of billions of dollars worth of each other's goods, and it is escalating with new tariffs.

Manufacturing is technically already in a recession in the USA with a Federal Reserve measure of output declining in two consecutive quarters.

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A chemical products respondent noted that while business is strong there is an undercurrent of fear and alarm regarding the trade wars and potential recession.

New tariffs on Chinese goods took effect over the USA holiday weekend. Additional U.S. tariffs are due to be imposed in December.

With trade tensions still simmering in the background, the Federal Reserve is expected to cut interest rates again this month to keep the longest economic expansion in history on track. The 10-year US Treasury bond yield fell sharply after the data and is now closing in on the all-time lows, losing more than 4% on the day while Wall Street's three main indexes all erase around 1%. Stocks on Wall Street fell, while the dollar .DXY was little changed against a basket of currencies.

And supplier deliveries, at 51.4 (a reading above 50 indicates contraction) was 1.9% lower than July's 53.3 reading, which is the lowest reading since September 2016's 50.2, marking the 42nd consecutive month of slowing supplier deliveries.

ISM's new export orders were down to their lowest level since April 2009 as well. The seven industries reporting contraction in August - in the following order - are: Apparel, Leather & Allied Products; Fabricated Metal Products; Transportation Equipment; Primary Metals; Plastics & Rubber Products; Paper Products; and Electrical Equipment, Appliances & Components.

The government will publish August's employment report on Friday.

An index measuring manufacturing production declined by 1.3 points, according to the ISM. The media have been using "recession" along with any sort of slowing of late, although this report does represent a month of contraction. "In the meantime, China's Supply Chain will crumble and businesses, jobs and money will be gone!"

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