Global manufacturing is slowing, with US activity at decade low

Warning signs of a slowdown in the global economy have been flashing for months as the 15-month-long trade war between the United States and China drags on.

On Tuesday, more sobering signals surfaced as data on manufacturing from around the globe underscored how decelerating exports and rising business uncertainty in the wake of deepening trade and political turmoil are presenting ever stronger headwinds for major economies.

Factory activity in the US hit a ten-year low in September, the Institute for Supply Management (ISM) said in a report released on Tuesday. Analysts had been expecting a rebound in September, after August marked the first time in three years that US manufacturing activity had contracted.

Manufacturing has borne the brunt of trade tariffs, which the White House maintains are necessary to protect US industries from what it says is unfair foreign competition.

President Donald Trump blames the Federal Reserve – in particular Chair Jerome Powell – for the sector’s malaise.

“As I predicted, Jay Powell and the Federal Reserve have allowed the Dollar to get so strong, especially relative to ALL other currencies, that our manufacturers are being negatively affected,” Trump wrote on Twitter shortly after the ISM report was published. “Fed Rate too high. They are their own worst enemies, they don’t have a clue. Pathetic!”

‘Even more downside risks’

Meanwhile, analysts warned of what Tuesday’s read on the US factory sector could portend for the rest of the economy.

“We expect that the slowdown in the manufacturing index will eventually spill over to the broader economy, and this latest drop in manufacturing ISM index points to even more downside risks for the upcoming non-manufacturing ISM index, which is due to be released on Thursday,” read a note to clients from two NatWest Markets economists, Michelle Girard and Kevin Cummins.

Tuesday also revealed that activity in Germany‘s factory sector sank to its lowest level in a decade last month, as measured by IHS Markit’s Purchasing Managers’ Index.

Germany’s export-reliant factories are suffering from slowing demand in the wake of trade disputes, as well as uncertainty surrounding the United Kingdom‘s planned but delayed exit from the European Union.

Also darkening the global outlook is manufacturing activity in Japan, which contracted at the fastest pace in seven months in September, according to Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index.

On Monday, a private survey showed a slight improvement in China’s manufacturing activity in September, but analysts cautioned the uptick is being driven by a rise in domestic orders and will likely be short-lived.

Compounding the dismal data on Tuesday, the World Trade Organization (WTO) slashed its forecast for global trade growth by more than half.

“The darkening outlook for trade is discouraging but not unexpected,” Roberto Azevedo, Director-General of the Geneva-based WTO, said in a statement. “Beyond their direct effects, trade conflicts heighten uncertainty, which is leading some businesses to delay the productivity-enhancing investments that are essential to raising living standards.”

Azevedo warned that “job creation may also be hampered as firms employ fewer workers to produce goods and services for export”.

The WTO said on Tuesday that it now expects global merchandise trade to increase by 1.2 percent this year, compared with its April estimate of 2.6 percent. For 2020, it has been forecast to grow at 2.7 percent, down from a previous estimate of three percent.