Mayday, mayday. The U.S. manufacturing boom is showing signs of distress. Business investment has plunged amid growing trade uncertainty, and another warning came Tuesday in the Institute for Supply Management survey that showed manufacturing contracted last month for the first time since 2016.
ISM's manufacturing index declined to 49.1% in August from 51.2% in July and 59.5% last September, signaling an end to a 35-month expansion that has been losing steam for four months. The employment (47.4 and new export orders (43.3%) indexes registered even steeper declines.
"Incoming sales seem to be slowing down, and this is usually our busiest season," one furniture manufacturer reported, blaming "concerns about the economy and tariffs." An electronics manufacturer noted "pockets of short supply, allocation, long lead times and the like. Tariffs continue to be a strain on the supply chain and the economy overall."
None of this is surprising. Businesses from Best Buy to Caterpillar this summer reported that President Trump 's trade brawls were disrupting supply chains, reducing exports, raising material costs and delaying investment decisions. IHS Markit reported on Tuesday that its manufacturing purchasing index is the lowest since September 2009.
Uncertainty about demand, prices and tariffs is causing business to scale back new equipment purchases. John Deere noted in its last quarter earnings that "concerns about export-market access, near-term demand for commodities such as soybeans, and overall crop conditions, have caused many farmers to postpone major equipment purchases."
Slower global growth has pushed down oil prices and caused small shale drillers to tighten their belts. Steel makers have been laying off workers amid lower demand. According to ISM, primary and fabricated metals were among the seven manufacturing industries that contracted last month, which may augur a more severe slowdown among downstream users such as autos.
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Manufacturers have added 55,000 jobs this year compared to 162,000 during the same period last year. While manufacturing makes up a small share of the U.S. economy and employment, it can be a canary since it is sensitive to business demand.
Business investment declined 6.1% in the second quarter_the biggest contraction since the first quarter of 2011_and nicked 1.1 percentage points off GDP. Net exports subtracted another 0.72 percentage points. Americans have kept spending, but they will eventually pull back too if hiring and wage growth slows.
Consumer sentiment has been mixed in recent economic reports. Most seem to feel good about their own circumstances, but they are worried about the whipsawing stock market and erratic trade policies. The latest tariffs on China will hit a swath of consumer goods including TVs, shoes and Bluetooth ear buds.
About 70% of shoes sold in the U.S. are imported from China, and some are already subject to tariffs as high as 67.5%. The 15% tariffs that took effect on Sept. 1 will raise the price of hunting boots on average by $40. Chinese exporters will swallow some of the tariff costs due to a weakening yuan, but consumers will probably have to eat some too.
Mr. Trump can rightly boast that the U.S. has added more manufacturing jobs since he took office than during Barack Obama 's entire second term. But he could lose his economic bragging rights due to trade policies that have done serious economic damage without the gains he promised. Reordering global supply chains built over a generation turns out to have far greater economic costs than the Trump trade warriors imagined. The political costs may follow.
-- The Wall Street Journal