U.S. Factory Gauge Slumps to Six-Month Low Amid Trade War

(Bloomberg) -- A gauge of U.S. manufacturing fell by more than forecast to a six-month low, as orders and hiring cooled amid escalating trade tensions with China, data from the Institute for Supply Management showed Thursday..Highlights of ISM Manufacturing (October)Factory index dropped to 57.7 (est. 59) from 59.8 in prior month; readings above 50 indicate expansion Measure of new orders fell to 57.4 from 61.8; two-month decline of 7.7 points is steepest since Jan. 2015Export orders gauge decreased to 52.2, lowest since Nov. 2016, from 56Employment index declined to 56.8 from 58.8.Key Takeaways.The report may add to concerns that President Donald Trump’s trade war with China is starting to inflict more pain on manufacturing even as the industry continues to expand. The export-orders gauge fell for the third time in four months, while new orders decelerated for the fourth month in five..The data follow other reports this week showing manufacturing in some of Asia’s most export-driven economies softened in October, highlighting spillovers from the trade spat. At the same time, U.S. stocks rallied Thursday after Trump said he had a productive conversation with Chinese President Xi Jinping on trade..Elevated price pressures and a pickup in measures of backlogs and supplier deliveries show lingering supply-chain bottlenecks. Disruptions and data volatility related to major storms in September and October may have played a role. Another potential headwind is the stronger U.S. dollar, which has rallied sharply in the past six months..Some of the results may reflect an unwinding of gains from previous months when manufacturers were rushing to purchase materials and export their products ahead of U.S. tariffs and counter-levies by China. Trump has threatened to raise the tariffs further and on more products..Analysts are also monitoring factory reports to assess whether the tax-cut-driven boost to business investment may be fading. Figures last week showed corporate spending on equipment cooled in the third quarter to the slowest pace of gains since 2016. Meanwhile, the job market remains solid, and the October jobs report due Friday is projected to show manufacturing payrolls climbed..Official’s Views.More than 40 percent of the comments from ISM survey respondents in the past few months have been related to tariffs, Timothy Fiore, chair of ISM’s manufacturing survey committee, said on a conference call. Companies continue to evaluate where to set up their manufacturing operations, he said..“Import tariffs and counter-tariffs are the biggest inhibitor to the expansion in manufacturing” and trade strains are “restricting demand,” Fiore said in an interview..Other Details.Production index decreased to 59.9 from 63.9; biggest decline since March 2017Measure of prices paid jumped to 71.6 from 66.9, first increase in five monthsGauge of supplier deliveries rose to 63.8 from 61.1; shows lead times lengtheningIndex of backlogs at 55.8 after 55.7; inventories slid to 50.7, lowest since May, from 53.313 of 18 manufacturing industries reported growth, including machineryFour industries reported contraction: Wood products; primary metals; nonmetallic mineral products and fabricated metal products.--With assistance from Kristy Scheuble..To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net.To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Jeff Kearns.©2018 Bloomberg L.P.

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U.S. Factory Gauge Slumps to Six-Month Low Amid Trade War

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