What's going on?
Data out on Tuesday showed US manufacturing activity declined last month for the first time since January 2016.
What does this mean?
American factory work grew in July (just). And despite the latest figures looking bleak for the UK, eurozone, and China, economists were still expecting a slight uptick in August.
But that wasn’t to be. Amid ongoing trade conflict and slowing economic growth forecasts, the country’s manufacturing sector instead shrank last month, with activity falling to its lowest level in over three and a half years. Echoing factory data around the world, American industry also reported a sharp drop in new overseas export orders: they haven’t been this weak since 2009.
Why should I care?
For markets: The dollar remains resurgent.
The US might be suffering manufacturing melancholy, but things are worse elsewhere: the mills of European goods have been grinding ever more slowly for seven months straight. That may be one reason why America’s currency continues to go from strength to strength. The dollar is currently at its highest level this year relative to other countries’ cash, with investors selling down not just euros but also Chinese yuan (at their weakest since 2008) and British pounds (at their weakest – bar a 2016 blip – since 1985). [Tweet this]
The bigger picture: A crisis of confidence.
Higher trade taxes on incoming Chinese goods – designed in part to give US businesses’ production a boost – have had the less desirable effect of piling up costs and concerns for America’s smaller firms in particular. According to a survey for The Wall Street Journal, their confidence in the near-term future of the US economy is sitting at its lowest since 2012. Larger firms have big enough bank balances to buy overseas products before fresh rounds of tariffs kick in, but smaller companies may again get hit disproportionately hard by December’s batch – which will also punch consumers in the pocket.