The newest manufacturing report from the Institute for Supply Management shows the first contraction for the sector since 2016 as companies wrestle with the heightened trade war between the U.S. and China.
The ISM U.S. manufacturing Purchasing Managers’ Index (PMI) sank to 49.1% in August, which is its lowest point in three years. Anything below 50% is labeled a contraction while anything above 50% is an expansion. Before the contraction, the PMI was on a 35-month expansion streak that averaged 56.5%, according to CNBC.
“Respondents expressed slightly more concern about U.S.-China trade turbulence, but trade remains the most significant issue, indicated by the strong contraction in new export orders,” Timothy Fiore, Chair of ISM Manufacturing Business Survey Committee, said in a statement.
And those concerns are not likely to subside any time soon as new rounds of tariffs on both American and Chinese goods went into effect over the weekend. New 15% duties on $112 billion of imports from China started on Sunday, and many of the goods targeted fall into the consumer sector.
The manufacturing data and new tariffs combined to hit the stock market with big losses Tuesday. The Dow Jones Industrial Average was down 370 points around 2:30 p.m. EDT. The S&P 500 was also down 29 points and the Nasdaq had lost 111 points.
ISM’s new export orders were down to their lowest level since April 2009 as well. It was the second consecutive month of decline.
“Many respondents continued to note global trade softness as a reason for sluggish activity,” Fiore said.
The ISM PMI wasn’t the only index showing slowdown, either.
IHS Markit also released new U.S. manufacturing data Monday. Its U.S. manufacturing PMI actually signaled a slight expansion at 50.3, but it was still the lowest level for that tracked data since September 2009, according to CNBC. Initial data from late August had this index also contracting at 49.9, but that number was revised up.
“The August PMI indicates that US manufacturers are enduring a torrid summer,” IHS Markit Chief Business Economist Chris Williamson said. “Output and order book indices are both among the lowest seen for a decade, indicating that manufacturing is likely to have again acted as a significant drag on the economy in the third quarter, dampening GDP growth.”
