US Factory Activity Softening In Tight Global Market

A reliable gauge of US factory output fell this month to its lowest levels since late in 2009, hovering around that important threshold between expansion and contraction.  This is the latest of many signals that the American industrial sector is losing steam in a stirring environment of uncertainty. 

Indeed, the IHS Markit manufacturing Purchasing Managers’ Index slipped from 50.5 to 50.1, as described in a preliminary report, posted on Friday.  These numbers trail most estimates made by economists in the Bloomberg survey.  On top of this, though, another gauge for service providers edged down to a three-year low of 50.7, which is also lower than what had been expected. 

These readings continue to signal that the economy slowed in the second quarter of the year, mostly on the heels of President Donald Trump’s aggravating trade policies and, consequently, weaker global growth.  As such, the Federal Reserve central bank downgraded its economic assessments, this week, signaling more of an inclination towards cutting the interest rates. 

All of this is to say that manufacturing downturn has spawned more slow-down in the service sector. And this has led to deterioration of business sentiment across the country, largely on concerns over greater tariffs and arising conflicts in geopolitics. 

In addition to this, the report notes that payroll gains—among all industries, not just the manufacturing and service sectors—have fallen to their weakest levels in the last two years.  And, coincidentally, anecdotal evidence suggests that heightened economic uncertainty—in all areas—have stifled hiring efforts. 

Unfortunately, the trade tensions will probably continue as the United States and China keep responding to each other by simply adding more tariffs.  It all started, of course, US President Donald Trump raised tariffs on $200 billion in Chinese imports; and China responded by increasing tariffs on at least $60 billion of US goods. 

And then Trump threatened another $300 billion in Chinese imports if Beijing does not agree to a new trade deal soon.  Trump vows to “rebalance” the global economy in favor of the United States, but his efforts have only created a more volatile market among indexes in the US.