- Signs of weakness in the manufacturing sector have been mounting left and right in recent months.
- Economists say that is part of a broader downward trend, but trade tensions have added to uncertainty in the sector.
- Manufacturing activity accounts for about 12% of gross domestic product but holds deep ties to other key sections of the economy.
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Signs of weakness in the manufacturing sector have been mounting left and right in recent months, adding to concerns that the decade-long expansion could be running out of steam.
Manufacturing activity accounts for about 12% of gross domestic product but holds deep ties to other key sections of the economy.
The US purchasing managers index, which gauges activity based on a survey of firms, dropped this May to its lowest level since President Donald Trump took office.Regional readings have been similarly dismal, with the Empire State manufacturing index posting its largest drop ever this month.
Federal Reserve Chairman Jerome Powell pointed to weakening factory activity at the latest Federal Open Market Committee meeting, where policymakers signalled they could lower interest rates to keep the economy expanding. He said a number of factors, including slowing global growth and trade tensions, appeared to be driving the decline.
“Manufacturing, investment, and trade have been weaker,” Powell told reporters this month. “There isn’t any one thing that explains it all. But it’s something that we’re watching.”
This all comes despite an “America First” policy focus from President Donald Trump, who has long vowed to bring back manufacturing jobs through rearranged trade relationships and deregulatory measures.
“My plan includes a pledge to restore manufacturing in the United States,” he said at a Detroit, Michigan campaign rally in 2016. “We’re going to start making things again.”
While manufacturing jobs saw an uptick throughout the first two years of the Trump administration, factory hiring has slowed in recent months.
Economists say that is part of a broader trend, but tariffs have added to uncertainty in the sector. Trump has levied duties on large swaths of imports from trade partners and threatened to escalate tensions on multiple fronts.
Higher costs and supply-chain disruptions have been cited by manufacturers in the US and elsewhere. Earlier in June, IHS Markit’s global manufacturing index pointed to a contraction as it fell to its lowest level in seven years.
“This is a clear indication that the trade uncertainty has caused a wait-and-see approach by corporate managers,” said Mark Hackett, chief of investment research at Nationwide. “If no trade resolution is reached, several economies could re-enter recessions, similar to 2012 and 2013.”
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