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Recession Watch: Manufacturing Contracts for First Time in a Decade

Recession Watch: Manufacturing Contracts for First Time in a Decade

With the yield curve inverting again Thursday morning, there was more bad economic news as U.S. manufacturer growth contracted for the first time in a decade in the month of August, the latest sign pointing to an economic slowdown and possible recession.

“August’s survey data provides a clear signal that economic growth has continued to soften in the third quarter.”

According to IHS Markit, the U.S. manufacturing purchasing managers index (PMI) fell to 49.9 for the month of August, down from 50.4 in July. Anything below the neutral 50.0 signals contraction, and it was the first time since September 2009 it has fallen below 50.0.

“Manufacturing companies continued to feel the impact of slowing global economic conditions,” Markit Economics Associate Director Tim Moore said in a statement Thursday. “August’s survey data provides a clear signal that economic growth has continued to soften in the third quarter.”

The manufacturing sector has been one of the biggest winners under the Trump administration, but the trade war is starting to weigh. Manufacturing activity also slowed to a three-year low in July, according to CNBC.

However, the latest survey from the Institute for Supply Management showed new orders taken by manufacturers dropped the most in a decade while export sales fell to the lowest levels since August of 2009.

“The most concerning aspect of the latest data is a slowdown in new business growth to its weakest in a decade, driven by a sharp loss of momentum across the service sector,” Moore said. “Survey respondents commented on a headwind from subdued corporate spending as softer growth expectations at home and internationally encouraged tighter budget setting.”

Manufacturers also worked to reduce their inventories this month, mostly because of concerns over reduced demand.

U.S. business activity as a whole also fell to a three-month low, signalling a “renewed slowdown” in the rate of U.S. private sector business activity growth, Markit said.