Growth in the crucial US manufacturing sector slowed in October to its lowest level in six months as the US-China trade war bit deeper into business, a survey showed Thursday.
The ISM manufacturing index fell 2.1 percentage points to 57.7 percent, which still represents healthy growth but was also significantly below analyst forecasts.
The unexpected dip in the Institute for Supply Management’s monthly survey for the first time showed a contraction in business for makers of manufactured metal goods — a sector facing higher prices due to US import tariffs — while other businesses complained increasingly of disrupted supply chains and higher costs.
Any reading above 50 percent indicates growth, and US manufacturing has now grown without interruption for more than two years.
“Not bad but when you’ve had these levels month after month and then you have a two-point decline it says something’s happening,” Timothy Fiore, chairman of the ISM manufacturing survey committee, told reporters.
“I’m hoping that there’ll be a rebound.”
New orders dipped 4.4 points — falling below 60 percent for the first time in 18 months — production slipped by four, employment was two points lower but prices rose 4.7 points, accelerating their gains.
Fiore said that, for the fifth month in a row, more than 40 percent of businesses complained of tariff-related troubles.
Manufacturers are increasingly worried they will not be able to pass on rising costs to customers and as a result are making “manufacturing footprint changes” to sustain business in 2019, he added.
– Tariffs a ‘big problem’ –
The number of manufacturing industries reporting expansion fell by two to 13.
Wood producers, primary metal makers, fabricated metal manufacturers which produce goods like tractors and machinery, as well as non-metallic minerals producers, all said they shrank.
Survey respondents in the chemical goods, food and beverage, plastics and rubbers, oil and coal as well as miscellaneous manufacturing all said tariffs were hurting business.
A respondent in plastics and rubbers said a recently concluded deal to rewrite the North American free trade pact “does nothing to help our company” because it left tariffs in place on aluminum and steel.
President Donald Trump this year has imposed tariffs on about $250 billion in Chinese imports — with duties on a $200 billion tranche due to rise to 25 percent by January 1.
Trump said Thursday he had had a “very good” call with Chinese President Xi Jinping ahead of an expected meeting at this month’s Group of 20 summit in Argentina.
Ian Shepherdson of Pantheon Macroeconomics, which was not involved in producing the survey, said the ISM report was likely to soften further in the coming months but would still be supported by recent fiscal stimulus and strong consumer demand.
Slower growth outside the United States and a stronger dollar could also weigh on US exports, he added.
“For the consumer, the tariffs are for the most part still an abstract idea, but for manufacturers they are real, and a big problem,” he said in a note to clients.
“This might just be noise, but wouldn’t bet on it.” (AFP)