U.S. manufacturing shrinks for 1st time in 3 years

Output at U.S. manufacturers shrank for the first time in three years in August, a possible sign that trade uncertainty is having an impact on a key part of the American economy.

Institute for Supply Management — which represents purchasing managers at major industrial firms — said Tuesday its manufacturing index fell to 49.1 last month. That's down from 51.2 in July. Any reading below 50 implies more companies are getting smaller than getting bigger, and August's number is the first such showing since August 2016.

"The headline disappointment is backed up by weak details," Scotiabank economist Derek Holt said of the numbers.

More than half of the public comments from companies surveyed by ISM pointed to economic uncertainty as a drag on their businesses. 

"There is little better evidence of the cost to the domestic economy stemming from the Trump administration's policies than the sharp decline in new export orders that coincides with Trump's increased tariffs announced in August," Holt said.

Manufacturing makes up about 11 per cent of the U.S. economy, so in and of itself a slowdown at companies that build things is likely not enough alone to tip the economy into recession. But it's yet another reason for concern, Holt said.

"President Trump's policies are bringing U.S. manufacturing down and out instead of home."

TD Bank economist Fotios Raptis noted that the ISM's employment subindex fared even worse, down four points to 47.4. That implies that there are more U.S. manufacturers that plan on laying off workers than hiring them.

"Looking ahead, U.S. manufacturers will likely continue to face an extended period of trade policy uncertainty coupled with wavering domestic demand and little improvement in foreign demand conditions," Raptis said.  "The key question is whether the woes of the manufacturing sector will spillover and takedown the thus far stalwart U.S. consumer."