US manufacturing contracted for a sixth straight month in August as factories dealt with the fallout from the Trump administration’s import tariffs, with some manufacturers describing the current business environment as “much worse than the Great Recession.”
The Institute for Supply Management (ISM) survey yesterday also showed some manufacturers complaining that the sweeping import duties were making it difficult to manufacture goods in the United States. President Donald Trump has defended his protectionist trade policy, which has raised the nation’s average tariff rate to the highest in a century, as necessary to revive a long-declining US industrial base.
That was reinforced by government data showing spending on the construction of factories dropped in July and was down 6.7 per cent from a year ago. A US appeals court ruled last Friday that most of Trump’s tariffs were illegal, adding more uncertainty for businesses.
“I continue to see the broad economy generally and the manufacturing sector in particular as in a holding pattern until tariff-related uncertainty recedes,” said Stephen Stanley, chief US economist at Santander US Capital Markets.
The ISM said its manufacturing PMI edged up to 48.7 last month from 48.0 in July. A PMI reading below 50 indicates contraction in manufacturing, which accounts for 10.2pc of the economy. Economists polled by Reuters had forecast the PMI would rise to 49.0.
Seven industries, including textile mills, miscellaneous manufacturing and primary metals, reported growth last month. Among the 10 industries reporting contraction were makers of paper products, machinery, electrical equipment, appliances and components as well as computer and electronic products.
Tariffs continued to dominate commentary from manufacturers. Some makers of transportation equipment said conditions were worse than the 2007-09 recession, adding “there is absolutely no activity” and “this is 100 percent attributable to current tariff policy and the uncertainty it has created.” Some viewed the conditions as consistent with “stagflation.”
Some electrical equipment, appliances and components producers complained that “‘made in the USA’ has become even more difficult due to tariffs on many components.” They said the “administration wants manufacturing jobs in the US, but we are losing higher-skilled and higher-paying roles.” Others reported that because of the lack of “stability in trade and economics, capital expenditures spending and hiring are frozen.”
Manufacturers of computer and electronic products said “tariffs continue to wreak havoc on planning and scheduling activities,” adding that “plans to bring production back into (the) US are impacted by higher material costs, making it more difficult to justify the return.”
Food, beverage and tobacco products manufacturers warned that everything made of organic sugar was “about to get significantly more expensive” because of a 50pc tariff on imports from Brazil and the US Department of Agriculture’s elimination of the specialty sugar quota.
Stocks on Wall Street were trading lower as investors worried over the appeals court ruling on the legality of tariffs. The dollar advanced against a basket of currencies. US Treasury yields rose.
The ISM survey’s forward-looking new orders sub-index increased to 51.4 after contracting for six consecutive months.
Nonetheless, ISM Manufacturing Business Survey Committee Chair Susan Spence said that for every positive comment about new orders there were “2.5 comments expressing concern about near-term demand, primarily driven by tariff costs and uncertainty.” The survey’s production gauge fell to 47.8 from 51.4 in the prior month.
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