US manufacturing activity hits 2-year low as orders plunge
04 January 2019
US manufacturing activity slowed to a two-year low in December amid a plummeting of new orders and factory hiring, on the back of President Trump’s protectionist policies, a strong dollar and a lack skilled workers and a general slowing of world economy.
The broader labour market in the US, however, remained strong, showing that the shocks are yet to reach the micro level. But once a downbeat starts the Trump policies could hit a wall of uncertainty.
A survey by the Institute for Supply Management (ISM) published on Thursday offered an assessment of the manufacturing sector, with almost all components declining last month, which could further stoke concerns about how immune the US economy is to a global growth slowdown.
“The economy is just going to be spinning its wheels with subpar growth in 2019 if the purchasing managers report is to be believed,” said Chris Rupkey, chief economist at MUFG in New York. “New orders have dried up and this will take a toll on business investment and growth in 2019.”
The Institute for Supply Management (ISM) said its index of national factory activity tumbled 5.2 points to 54.1 last month, the lowest reading since November 2016.
The drop was the largest since October 2008, when the economy was in the throes of a recession. A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for about 12 per cent of the US economy.
The ISM said that demand had “softened.” It said while consumption continued to strengthen, with production and employment still expanding, this was “at much lower levels compared to prior periods.”
The ISM's new orders sub-index plunged 11 points to 51.1 last month, the lowest reading since August 2016. The survey's factory employment measure dropped to 56.2 in December from 58.4 in the prior month.
The fact is that the tariffs imposed by the Trump administration on steel and aluminium imports as well as a range of Chinese goods are hurting manufacturers. Transportation equipment manufacturers said “customer demand continues to decrease due to concerns about the economy and tariffs.”
Machinery makers complained that “the ongoing open issues with tariffs between US and China are causing longer-term concerns about costs and sourcing strategies for our manufacturing operations.” Computer and electronic product manufacturers said “growth appears to have stopped.”
President Donald Trump has defended the duties as necessary to protect American industries from what he says is unfair foreign competition. The White House's protectionism has lead to a trade war with China and tit-for-tat tariffs with other trading partners, including the European Union, Canada and Mexico.