Factory Activity Falls to a Decade Low

Written by SK Ashby

The American manufacturing recession triggered by Trump's trade war continued and deepened for the fifth month in a row in December according to a survey of industry officials.

The latest reading of the purchasing manager's index found that manufacturing activity has fallen more than expected and is now at the lowest level since the Great Recession of 2009.

The Institute for Supply Management said its manufacturing index slid to 47.2% last month from 48.1% in November, marking the fifth straight contraction. It’s softest reading since June 2009 — just as the U.S. was exiting the Great Recession.

The deterioration in December stemmed in part from Boeing BA-0.77% suspending production of its troubled 737 Max jetliner and the residue of a recent strike at General Motors GM-0.92% , but the report showed broad weakness in manufacturing tied to the ongoing trade war with China.

Economists surveyed by MarketWatch had forecast the index to total 48.8%.

Because this is "tied to the ongoing trade war with China," there's not much reason to think things will improve a substantive amount in the near future because the trade war isn't ending.

Trump has not signed "phase one" of his "greatest and biggest deal ever" yet but, even if he does, it's not going to end the war. Trump's deal with China will only partially roll back tariffs he imposed in the fall of 2019 from 15 to 7.5 percent and won't touch the tariffs of 25 percent he imposed on over $250 million in Chinese goods in 2018. The latter tariffs, which includes duties on many industrial goods, are what has caused the slump in manufacturing in the first place.

The underlying conditions contributing to weakness in manufacturing won't be resolved until Trump completely ends his trade war or he's removed from office. And even if Trump is defeated, the next president will likely find it politically difficult to immediately end the former's trade war without at least going through the motions of talking to China so it could be with us through a significant chunk of the year after the election.