Oct 1, 2019

The state of play in the manufacturing trade war

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Data: Caixin, Institute of Supply Management; Chart: Axios Visuals

The manufacturing sectors of the U.S. and China are moving in opposite directions, and data released Monday shows the gap is widening.

On one side: China's Caixin purchasing managers' index, a private survey of the country’s manufacturing activity, had its strongest reading since February 2018. The improvement was driven largely by increased domestic demand, which has picked up as foreign sales continue to sink because of the trade war.

  • "The Chinese government’s stimulus measures, although relatively modest so far, are helping to buffer China’s industrial sector," Eswar Prasad, a senior fellow at the Brookings Institution and former head of the IMF’s China Division, tells Axios in an email.
  • "The notion that China’s economy faced a drastic slowdown was a bit overblown. They have been facing a steady gradual slowdown that they are not uncomfortable with as growth around 6 percent is a more sustainable rate, now that they are a $13 trillion economy."

On the other side: The Chicago Business Barometer, which tracks Midwestern business activity steered mainly by trade and manufacturing, fell back into contraction in September. A measure of business confidence within the index dropped to its lowest level since 2009.

  • The unexpected weakness "indicates strain in 'real economy' sectors like manufacturing that drive nationwide consumer spending," the Wall Street Journal notes.
  • "The combined gross domestic product for states in the Great Lakes and Plains regions, as defined by the U.S. Bureau of Economic Analysis, account for almost one-fifth of U.S. GDP. Pain in the Midwest will quickly ripple outward."

Of note: Looking at the chart, 50 is the level separating expansion from contraction.

What's next: Today, the Institute for Supply Management will publish its monthly U.S. manufacturing survey, which declined in August for the first time in 3 years.

Go deeper: China's rust belt

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Trump attacks Fed as U.S. manufacturing index plunges to decade low

Trump and Jerome Powell. Photo: Drew Angerer/Getty Images

President Trump on Tuesday renewed his attacks on the Federal Reserve and Chairman Jay Powell, after a key U.S. manufacturing gauge signaled the second consecutive month of sector-wide contraction.

"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. Fed Rate too high. They are their own worst enemies, they don’t have a clue. Pathetic!"
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Analysts expect key U.S. manufacturing index to improve this month

Data: Institute for Supply Management; Chart: Axios Visuals

The U.S. jobs report will be the most watched piece of data this week, but Friday will also bring the October reading of the Institute for Supply Management's manufacturing data. The index fell to the lowest level since June 2009 in September.

Why it matters: The U.S. manufacturing industry has seen a consistent decline all year, falling into recession earlier in the year and showing outright contraction for the second month in a row last month.

Go deeperArrowOct 28, 2019

Index tracking U.S. services sector activity falls to 3-year low

An index that tracks activity within the services industry fell to a 3-year low in September, while a gauge of hiring within the sector dropped to the lowest level since 2010, according to the ISM non-manufacturing activity survey.

Why it matters: It’s the latest indicator pointing to an economic slowdown in the shadow of a trade war between the world's 2 largest economies, following the 2nd straight month of contraction in the U.S. manufacturing sector. While the services industry is still growing, this is the first sign that the all-important services industry — which makes up a way bigger slice of the economy than manufacturing (about 70%) — is starting feeling the blow.

Go deeper: How the China trade war threatens U.S. manufacturing jobs