The numbers: American manufacturers grew in July at the slowest pace in three years thanks to festering U.S. trade disputes that have hurt exports and undermined the global economy.
The Institute for Supply Management said its manufacturing index slipped to 51.2% last month from 51.7% in June. That’s the lowest reading since August 2016.
Economists surveyed by MarketWatch had forecast the index to total 51.9%.
Although readings over 50% indicate more companies are expanding instead of shrinking, the ISM index has fallen sharply since hitting a postrecession peak of 60.8% last year. That’s when the U.S. confrontation with China over trade led to the first round of tit-for-tat tariffs.
What happened: New orders rose a bit faster, but they aren’t growing much. The new-orders index edged up to 50.8% last month from 50%.
Production and employment are also still increasing, though just barely.
Big picture: Ongoing trade fights and a strong dollar have sapped U.S. exports and left manufacturers uncertain about what’s next. They’ve cut back on production and become more cautious about new investment until they get more clarity on whether trade tensions will be resolved.
Manufacturing is not as vital to the economy as it once was, however. The U.S. can continue to expand so long as heavy industry’s troubles don’t spread into the much larger service side of the economy.
That’s a big if, though. Some economists think a spillover effect is inevitable.
What they are saying? “General business trends are continuing to show signs of weakness resulting from tariffs and cost impacts of importing and exporting,” said a senior executive at a company that makes electrical equipment.
“Weakness in end markets accelerating rapidly. Continuing to reduce production based on weakening demand and declining current orders,” said an executive at a chemical company.
Market reaction: The Dow Jones Industrial Average
and S&P 500
rose in early Thursday trades. Stocks fell on Wednesday after Federal Reserve Chairman Jerome Powell indicated the central bank might not cut interest rates again this year.
The 10-year Treasury yield
was little changed at 2.04%.