US Manufacturing Sector Falls Into Stagnation in August, ISM Data Shows

Activity across the US manufacturing sector fell into contraction territory in August, dropping to the lowest level in more than three years, according to a closely watched purchasing managers indicator, while another gauge edged closer to that line.

The Institute for Supply Management’s manufacturing purchasing managers index fell to 49.1% last month from 51.2% in July, the lowest reading since January 2016. The consensus compiled by Econoday was for a print of 51.3%, with a range between 50.5% and 53%.

Separately, the seasonally adjusted IHS Markit final US manufacturing PMI posted a reading of 50.3 last month, down from 50.4 in July. Econoday’s consensus was for 49.9. Readings above 50 signal expansion while those below denote contraction.

ISM’s new orders index fell to 47.2% from 50.8% in July, while production slid 1.3 points to 49.5%. The measure for employment dropped 4.3 points to 47.4%, and supplier deliveries slid 1.9 points to 51.4%. Inventories edged up 0.4 point to 49.9%. Prices gained 0.9 point to 46%.

“Comments from the panel reflect a notable decrease in business confidence,” said Timothy Fiore, chair of the ISM’s Manufacturing Business Survey Committee. “August saw the end of the PMI expansion that spanned 35 months, with steady expansion softening over the last four months.”

Fiore said survey respondents were more “slightly” concerned about the US-China trade dispute, and it “remains the most significant issue, indicated by the strong contraction in new export orders.”

“We can find no good news here,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics “The survey is not yet consistent with a steep downturn in the broader economy, but another couple of months of declines would leave the US facing an entirely unnecessary and self-inflicted recession.”

IHS Markit said its reading “was weighed down by a subdued rise in production and lackluster client demand,” finishing at its lowest level in almost 10 years.

Employment sentiment remained unchanged from July while spare capacity was utilized to clear backlog, the firm said. Production growth was among the slowest seen over the past three years last month as demand forced more firms to slow output.

“Deteriorating exports are the key to the downturn, with new orders from foreign markets dropping at the fastest rate since 2009,” said Chris Williamson, IHS Markit’s chief business economist. “Many companies blame slower global economic growth for weakened order books, but also point the finger at rising trade war tensions and tariffs.”

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