Recession fears rose and stocks fell Tuesday after release of a report showing that U.S. manufacturing dropped to its lowest point in more than 10 years.
“The survey from the Institute for Supply Management (ISM) … came on the heels of data last week showing a cooling in consumer spending in August,” reported Reuters.
“The economy’s fading fortunes have been attributed to the Trump administration’s 15-month trade war with China, which has sapped business confidence and undermined manufacturing.”
The Dow Industrials closed the day down almost 344 points; the S&P 500 fell just under 36.5. Both were down about 1.25%.
“This is serious,” Torsten Sløk, chief economist at Deutsche Bank Securities in New York, told Reuters. “There is no end in sight to this slowdown, the recession risk is real.”
The ISM report showed its index of manufacturing activity tumbled 1.3 points last month, to 47.8. That’s its lowest level since June 2009, the last month of the Great Recession.
A drop of less than 5 more points would signal the onset of a new recession and the end of the longest economic expansion in U.S. history.
“The nearly 15-month trade spat with China and tariffs on steel, aluminum and other products may have been intended to help US manufacturers. But it appears to be having the opposite effect,” says the Associated Press.
“The World Trade Organization on Tuesday said Tuesday that trade flows this year are set to increase at the weakest pace since the 2008 financial crisis brought the global economy to its knees,” reports MarketWatch.
As usual, President Trump used Twitter to blame the Federal Reserve.
“Fed Rate too high. They are their own worst enemies, they don’t have a clue. Pathetic!” Trump wrote.
But most economists say it’s Trump’s trade war, not the Fed, that has brought on the slump.
“Simmering trade tension is the obvious culprit for the manufacturing weakness,” Eric Winograd, senior U.S. economist at AllianceBernstein, told the AP.
“The trade war is wreaking havoc,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Even so, investors apparently anticipate Trump will get his way on interest rates.
“Expectations for a rate cut by the end of October jumped to 60% after the ISM report from 40% a day ago, based on trading in the fed fund futures market,” reports MarketWatch.