We’ve tariffed our way into a mfr’g recession

The September ISM manufacturing index fell further into contraction at 47.8 vs 49.1 in August and below the estimate of exactly 50. That is the weakest print since June 2009. New orders were little changed but still below 50 at 47.3. Backlogs fell 1.2 pts to 45.1 and that is the 5^th time in a row it’s been below 50. The weakness in business was most obvious within exports which are down to 41 from 43.3 in August. That’s the lowest since March 2009. Inventories, both at the manufacturing level and at customers, remain below 50. Also of note, the employment component was down 1.1 pts to 46.3, the 2^nd month below 50 and the weakest since January 2016. Prices paid rose 3.7 pts to just below 50 at 49.7. I’m still watching closely how all these tariffs are filtering their way thru the supply chain.

The breadth of the weakness was broad as only 3 industries of 18 surveyed saw growth vs 9 in August. Now 15 industries are seeing an outright decline in business, up from 7 last month. Under the hood and in particular, there are ZERO industries that saw an increase in backlogs.

The ISM said simply and obviously, “Comments from the panel reflect a continuing decrease in business confidence…Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019. Overall, sentiment this month remains cautious regarding near term growth.”

Bottom line, we have now tariffed our way into a manufacturing recession in the US and globally. What’s the strategy now? It better be more than the Chinese buying more soybeans because if it doesn’t include strong provisions on defending US IP than what was the point of this whole thing. Sorry to have to say this again but using tariffs as the tool to push back against China was a really dumb idea and history will not look kind upon the strategy just as it didn’t for Reed Smoot, Willis Hawley and Herbert Hoover.

Here are some comments from those surveyed:

“Incoming sales are sluggish for this time of year.” (Furniture & Related Products)

“We have seen a reduction in sales orders and, therefore, a lower demand for products we order. We have also reduced our workforce by 10 percent.” (Plastics & Rubber Products)

“Business has been flat for us. Year-over-year growth has slowed dramatically.” (Miscellaneous Manufacturing)

“Demand softening on some product lines, backlogs have reduced, and dealer inventories are growing.” (Machinery)

“General market is slowing even more than a normal fourth-quarter slowdown.” (Fabricated Metal Products)

“Chinese tariffs going up are hurting our business. Most of the materials are not made in the U.S. and made only in China.” (Food, Beverage & Tobacco Products)

“Business outlook remains cautious. Orders seem to be decreasing, but luckily not as sharp of a decrease as we were expecting.” (Transportation Equipment)

“Continued softening in the global automotive market. Trade-war impacts also have localized effects, particularly in select export markets. Seeing warehouses filling again after what appeared to be a short reduction of demand.” (Chemical Products)

“Second month in a row in which shipments have outpaced new orders.” (Computer & Electronic Products)

ISM MANUFACTURING

ISM EXPORTS