‘Moving in the Wrong Direction’: U.S. Manufacturing Posts Worst Month Since Great Recession
Wed Oct 02 2019
Mark Cooper (1539 articles)

‘Moving in the Wrong Direction’: U.S. Manufacturing Posts Worst Month Since Great Recession

American manufacturing contracted for the second consecutive month in September—doing little to ease fears of a looming downturn.

The Institute for Supply Management’s Purchasing Managers Index (PMI) came in at 47.8% in September, its lowest figure since the summer of 2009, and down from 49.1% in August. A PMI below 50% signals a contracting manufacturing sector.

“This looks like an upset event. And that upset event is the trade war,” says Tim Fiore, the chair of ISM’s Manufacturing PMI Business Survey Committee. The cost of tariffs and logistical challenges of the trade war are starting to take their toll on production, he says.

Of the five metrics that make up the PMI four are contracting, including new orders and production. But the lowest reading came in the manufacturing employment component, which saw its index fall to 46.3% in September.

“We’re moving in the wrong direction. Everyone was just talking about finding and hiring the best people, all this talk of force reduction is new,” Fiore says.

And it isn’t just manufacturing in the U.S. that is down. Manufacturing in the Eurozone and China are each contracting, according to their latest PMI figures.

Long before an economy slips into a recession, the pain is usually visible on the factory floor. Firms place fewer orders. Manufacturers cut back on production. That’s why the PMI has long been considered one of the top leading economic indicators.

But a PMI under 50% doesn’t guarantee a downturn. Beginning in the fall of 2015, U.S. manufacturing contracted for five consecutive months. That manufacturing contraction, led by an oil bust, did not precede a downturn. We’ll soon find out if this one does.

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Mark Cooper

Mark Cooper

Mark Cooper is Political / Stock Market Correspondent. He has been covering Global Stock Markets for more than 6 years.