The ISM Manufacturing Index fell to 47.8 in September, falling well short of expectations for a modest recovery. Measures of production, employment, and new orders all declined.
The slowdown in the economy has been apparent across a range of metrics, but it has been most noteworthy in the nation’s factories. Continued uncertainty around trade policy, the reconfiguration of supply changes to manage costs, and the heavy toll of that uncertainty on business confidence and investment have all taken a toll. The worse news is that, at least for now, there is little reason to expect a resolution in the near term.
Clear signs of continued deterioration in manufacturing also increases the risk of a broader economic slowdown in the near-term, although the index remains above levels typically associated with a recession. That’s an important distinction, as there have been two other instances during this expansion that manufacturing has dipped below 50 and returned to robust growth.
The economy still appears to be on a path toward growth of around 2.0% for the quarter, driven predominantly by a strong consumer sector supported by solid labor market conditions and wage gains.
Until there is some degree of clarity on trade policy, it’s difficult to foresee conditions in the manufacturing sector and overall businesses confidence improving meaningfully. For now, spillover from weak manufacturing into the broad economy has been somewhat limited, but the longer the downturn lasts, the greater the impact that it will have on sentiment, spending, and the broad economy.
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