The American consumer has been propping up the U.S. economy, but fears deepened Tuesday that the troubled U.S. manufacturing sector could ultimately drag it down.
Factory activity shrank at the fastest pace in a decade last month amid the U.S.-China trade war and slowing global growth, driving stocks lower and reviving recession fears.
Those forces also led the World Trade Organization on Tuesday to sharply lower its forecast for global trade growth this year to 1.2%. That’s down from its 2.6% estimate in April and a gain of 3% last year.
A closely watched index of factory activity dropped to 47.8 in September from 49.1 the prior month, according to the Institute for Supply Management. That’s below the reading of 50 that economists expected and reflects a contraction in the sector for the second straight month. An index above 50 means expansion while below means contraction.
The index clocked in at the lowest level since June 2009, just after the Great Recession ended.
Manufacturing makes up only about 12% of the economy. But troubles in the sector can have an outsize effect on the economy by damping business confidence and curtailing factory payrolls, which in turn hurts consumer spending, says economist Gregory Daco of Oxford Economics.
Presidents Donald Trump and Xi Jinping have hit the reset button in trade talks between the world’s two biggest economies, at least delaying an escalation in tension that had financial markets on edge and cast a cloud over the global economy. (June 29) AP