U.S. Manufacturing Slowed in August – Sign of Weakness in the American Economy!

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GM Closing Plants and Laying Off Factory Workers

Dear Commons Community,

Very weak economic indicators in the manufacturing sector of the American economy sent shivers through Wall Street yesterday.  The slowdown is being attributed in part to the trade war with China as concerns over a recession mount.  As reported by Bloomberg and the New York Times.

“Manufacturing accounts for just 11 percent of the country’s gross domestic product, but it is often seen as an economic harbinger. Stocks fell on Wall Street after the release of the report, from the Institute for Supply Management, with the S&P 500 index closing down 0.7 percent.

“It was a pretty ugly report,” said Greg Daco, chief United States economist at Oxford Economics. “The headwinds that have been battering the global economy are washing up on U.S. shores.”

The institute’s manufacturing index was at 49.1 for August, down from 51.2 in July. Anything below 50 is considered a sign of contraction. The index is based on a survey of purchasing and supply managers.

Economists had expected the index to show a slight gain for August, making the drop all the more surprising and leaving the index at its lowest level since January 2016.

Several other recent indicators have suggested economic weakness. On Wall Street, short-term bond yields now exceed the return offered by longer-term notes, a sign a recession could be coming.

The institute’s survey is essentially a measure of business confidence. The latest figure echoed a University of Michigan survey released last week that showed the biggest drop in consumer confidence since 2012.

The Federal Reserve has taken note of the economic softening. The central bank in July cut its benchmark interest rate for the first time in a decade, and it is expected to cut rates again when policymakers meet in two weeks.

In a news release, the institute quoted several executives who attributed their anxieties to tariffs imposed on Chinese imports by the Trump administration. On Sunday, the United States placed a new 15 percent tariff on thousands of Chinese products, including some food and clothing items.

 “While business is strong, there is an undercurrent of fear and alarm regarding the trade wars and a potential recession,” an unidentified executive with a chemical products company is quoted as saying. A computer and electronic products manager told the institute that “tariffs continue to be a strain on the supply chain and the economy over all.”

The Trump administration’s tariffs have affected many factory owners who depend on overseas suppliers for components and raw materials. And with Beijing imposing retaliatory tariffs on American goods, many manufacturers reliant on sales to China are feeling pain as well. All of this makes manufacturers more vulnerable to trade tensions than service-economy companies.”

If the economy worsens, Trump can kiss any chance of re-election in 2020 good-bye!


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