U.S. factory activity shrank in August for the first time since August 2016, a sign that the trade war with China is weighing down a crucial sector of the economy.
The Institute for Supply Management, an association of purchasing managers, said Tuesday that its manufacturing index slid to 49.1 last month, from 51.2 in July. Any reading below 50 signals a contraction. That’s the lowest for the index since January 2016.
A global softening in demand, worsened by an increasingly high-risk trade war between the U.S. and China, appears to be hurting American manufacturers. More than half of the public comments from companies surveyed by ISM pointed to economic uncertainty as a drag on their businesses.
Investors were dismayed by the news. Stock prices, which had already fallen at the market’s open, dropped further after the report’s release. The Dow Jones Industrial Average slumped 389 points, or 1.5%, in morning trading.
A measure of production declined by 1.3 points. Factories are also cutting jobs for the first time since September 2016, as the employment index fell 4.3 points to 47.4. A measure of new orders fell by 3.6 percentage points, a sign that output may continue to decline.
Surveys of purchasing managers this week have suggested that the uncertainty generated by the trade war has hit manufacturers on a global scale. While surveys of purchasing managers showed mixed results in China, manufacturing activity declined across Japan, Taiwan, and South Korea. In Europe, German manufacturing activity remained close to July’s seven-year low, as new orders fell, producers scaled back output, and job losses rose steeply.
Meanwhile, a new round of tariffs on Chinese goods started Sunday, in the latest escalation of the trade war between Washington and Beijing.