U.S. Manufacturing Gauge Drops to Nine-Year Low

(Bloomberg) -- U.S. factory activity took a hit this month as the tariff war with China and an overhang of inventory dampened orders, adding to signs the economy could slow in the second quarter.

The preliminary U.S. manufacturing purchasing managers' index from IHS Markit fell two points to 50.6, the lowest reading since 2009, according to data Thursday. The drop was led by the new orders gauge, which showed a contraction for the first time since August 2009. IHS Markit's gauge of U.S. services also fell to a three-year low.

Factories in the world's largest economy have been thrown into uncertainty amid the intensifying trade conflict with China, as President Donald Trump increased tariffs this month on some imports from the Asian country and threatened more. Companies had previously increased orders to avoid a round of tariffs and are currently working through that overhang.

``Trade wars remained top of the list of concerns among manufacturers, alongside signs of slower sales and weaker economic growth both at home and in key export markets,'' Chris Williamson, chief business economist at IHS Markit, said in a statement. ``With the service sector’s performance being a key gauge of the health of domestic demand, this broadening-out of the slowdown poses downside risks to the outlook.”

--With assistance from Kristy Scheuble and Matthew Boesler.

To contact the reporter on this story: Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net

To contact the editor responsible for this story: Scott Lanman at slanman@bloomberg.net

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