Later in the day, the Manufacturing PMI reports published by the IHS Markit and the Institue for Supply Management (ISM) both confirmed the contraction in the sector's business activity to remind investors of a possible recession in the United States and triggered an intense flight-to-safety in markets. The Employment Index registered 47.4%, a decrease of 4.3 percentage points from the July reading of 51.7%.
The Institute for Supply Management said its closely-watched purchasing managers index slid to 49.1 in August to a level lower than any analysts expected, according to Bloomberg . Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
Timothy Fiore, chair of ISM Manufacturing Business Survey Committee, said in a statement that comments from the panel reflect a notable decrease in business confidence. The employment gauge came in at 47.4 from 51.7 in July and the prices index printed at 46 in August versus 45.1 the month before. Last month marked the first time since August 2016 that the index broke below the 50 threshold.
European stocks backed off from 1-month highs after the disappointing U.S. PMI data fuelled worries of global economic softness, while uncertainty over Britain's hard exit from the European Union put an end to the FTSE 100's four-day winning streak. It was the second consecutive month of decline.
Manufacturers today are anxious about a contraction in new export orders and to the cost of moving manufacturing out of China to circumvent the Trump tariffs, the ISM says.
The concerning readings comes just days after the U.S. and China imposed a new round of tariffs on billions of dollars worth of products starting September 1 in the latest escalation of the trade war.More news: Bahamas PM: Death toll from Hurricane Dorian rises to 7
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Trump also warned that when he wins, "China's Supply Chain will crumble and businesses, jobs and money will be gone!" under the new tougher conditions of the trade deal his administration would offer.
The institute's new order measure dropped to a seven-year low, suggesting tariffs are dampening demand for new products from United States producers.
US factory activity fell in August, the latest sign that a global manufacturing pullback is spreading amid rising trade tensions. "Overall, sentiment this month declined and reached its lowest level in 2019".
The index had been signaling a slowdown in manufacturing since April, but the August reading is the first to show an actual contraction of the factory sector since August of 2016. Orders are indicating a lack of demand at the same time that there were continued slower supplier deliveries. "Three of the six big industries modestly expanded, but two contracted strongly", says Fiore.
The U.S. manufacturing sector has hit a snag, contracting for the first time in three years, raising fresh concerns about the health of the U.S. economy.
Contractions in U.S. manufacturing have not always preceded recessions in the wider economy but the latest ISM figures will no doubt raise fears of a downturn.