Economy Trade

Manufacturing Falls to a Three-Year Low

JM Ashby
Written by JM Ashby

Manufacturing activity fell to its lowest level since the Obama administration during the month of May according to the Institute for Supply Management's (ISM) index of factory orders.

Construction activity also fell to its lowest level since the Obama administration according to the Department of Commerce.

From Reuters:

“Manufacturing is clearly taking it on the chin from the rising trade uncertainty,” said Chris Rupkey, chief economist at MUFG in New York.

The Institute for Supply Management (ISM) said its index of national factory activity dropped to 51.7 last month, the lowest reading since October 2016, from 52.1 in May. It was the third straight monthly decline in the index.

A reading above 50 indicates expansion in the manufacturing sector, which accounts for about 12 percent of the U.S. economy.

While the American manufacturing sector is treading water at a level that still indicates growth, the world's largest manufactures from China to Germany are already in recessionary territory with factory orders falling well below the threshold indicating growth.

Trump may have temporarily delayed his tariffs on $300 billion in Chinese goods, but his tariffs on over $250 billion in goods are still on the books and will remain in place for the foreseeable future. Likewise, China's retaliatory tariffs on American goods will remain in place as long as Trump's tariffs do.

It would have been calamitous if Trump had imposed additional tariffs on Chinese goods over the weekend, but it's not as if his tariffs that are already on the books can be ignored. Existing tariffs are already taking a toll on the American and global economy and we have no good reason to think they will be rolled back at any point in the immediate future. It's possible Trump's tariffs on Chinese goods could still be in place this time next year if not when America votes in November of 2020.

Some analysts reacted to Trump's decision to delay additional tariffs by saying that the Federal Reserve still has plenty of reason to raise interest rates next month because the underlying fundamentals of the economy are still weakening even if Trump's whims provide Wall Street with a very short-lived shot in the arm.

A separate report from the Commerce Department on Monday showed construction spending declined 0.8% in May, the biggest drop since last November, after rising 0.4% in April. Construction spending surged in the first quarter, boosted by increased investment in roads and highways by state and local governments.

Big government spending -- socialism! -- could be the only thing keeping us out of a recession.

Some economists say we actually will see a recession next year.

The rivalry between the U.S. and China could be so disruptive that it’s starting to decouple the global economy and eventually causing a recession, according to Nouriel Roubini, the economist famously called the housing bubble.

“The consequences of this trade and tech war and cold war [are] the beginning of de-globalizaion ... and the decoupling of the global economy. We’ll have to redo the global tech supply chain. And eventually by next year, if this escalates, it will be a global recession,” said the head of Roubini Macro Associates in an interview with Bloomberg TV on Tuesday. [...]

“My base case is ... the trade and tech war between the U.S. and China is going to get worse. Manufacturing is already in a recession globally. It’s affecting services...The tech sector is in a slowdown,” Roubini said.

  • muselet

    If the economy gets worse, it’s a lead-pipe cinch that Donald Trump and his apologists in and out of Congress will start screeching about how Barack Obama’s awful, terrible, socialistical policies are to blame.

    –alopecia

  • Badgerite

    Of course it does. As a private citizen trump could only bankrupt his own business. Now he can bankrupt the world.
    Good times.