U.S. manufacturing activity fell to a 10-year low, dragged down by a weakening global economy.
The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) fell to 47.6 in September, the lowest level since June 2009. As shown in the LPL Chart of the Day, the gauge stayed in contractionary territory (below 50) for a second straight month.
Underlying data in the ISM report showed tepid global demand continued to weigh on domestic manufacturing. ISM’s gauge of new orders was largely unchanged, but new export orders dropped to the lowest level of the economic cycle.
“Trade tensions have curbed global demand and stalled global manufacturing,” said LPL Financial Chief Investment Strategist John Lynch. “Even though manufacturing plays a relatively small role in the U.S. economy, it has historically been a bellwether for economic growth and corporate profits, so the recent decline could signal slowing growth ahead.”
The October 1 ISM report could also signal impending weakness in the labor market. ISM’s employment index fell to 46.3 in September, the lowest level since January 2016. Declining employment in the manufacturing sector could be a bad omen for the September jobs report, which is scheduled to be released October 4. Jobs growth has remained steady this year, but manufacturing payrolls growth has declined noticeably.
Overall, we’re watching to see if the weakness in manufacturing spreads to other areas of the U.S. economy. So far, the services sector remains in expansion, even though it has slowed in recent months, and consumer spending has adequately propped up economic growth. However, the cracks in the economic foundation are spreading, and we don’t expect any meaningful improvement in global manufacturing until we see a U.S.-China trade deal.
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