INSUBCONTINENT EXCLUSIVE:
WASHINGTON: US manufacturing activity slowed sharply to a two-year low in December amid a plunge in new orders and hiring at factories,
suggesting economy was probably not immune to slowing growth in China and Europe
The Institute for Supply Management (ISM) survey published on Thursday offered a downbeat assessment of manufacturing sector, with almost
all components declining last month
Concerns about economy's health are escalating despite labour market remaining strong.
"The economy is just going to be spinning its wheels
with subpar growth in 2019 if purchasing managers report is to be believed," said Chris Rupkey, chief economist at MUFG in New York
"New orders have dried up and this will take a toll on business investment and growth in 2019."
The Institute for Supply Management (ISM)
said its index of national factory activity tumbled 5.2 points to 54.1 last month, lowest reading since November 2016
The drop was largest since October 2008, when economy was in throes of a recession
A reading above 50 in ISM index indicates an expansion in manufacturing, which accounts for about 12 per cent of US economy.
The ISM said
that demand had "softened." It said while consumption continued to strengthen, with production and employment still expanding, this was "at
much lower levels compared to prior periods."
The ISM's new orders sub-index plunged 11 points to 51.1 last month, lowest reading since
The survey's factory employment measure dropped to 56.2 in December from 58.4 in prior month.
Tariffs imposed by Trump administration on
steel and aluminium imports as well as a range of Chinese goods are hurting manufacturers
Transportation equipment manufacturers said "customer demand continues to decrease due to concerns about economy and tariffs."
Machinery
makers complained that "ongoing open issues with tariffs between US and China are causing longer-term concerns about costs and sourcing
strategies for our manufacturing operations." Computer and electronic product manufacturers said "growth appears to have stopped."
President
Donald Trump has defended duties as necessary to protect American industries from what he says is unfair foreign competition
The White House's protectionism has lead to a trade war with China and tit-for-tat tariffs with other trading partners, including European
Union, Canada and Mexico.
In addition to tariffs, which have raised input costs for manufacturers, factory activity is also being undercut
by a strong dollar, a shortage of skilled workers, a fading fiscal stimulus and slowing growth in economies like China.
Data this week
showed factory activity weakened across much of Europe and Asia in December, with Chinese manufacturing contracting for first time in 19
Apple on Wednesday cut its sales forecast for its quarter ending in December, citing slowing iPhone sales in China.
US stocks extended
losses on weak ISM survey, with Dow Jones Industrial Average falling more than 600 points at one point
The dollar dropped against a basket of currencies, while US Treasury yields fell.
SLOWING ECONOMY
The sharp stock market sell-off has raised
spectre of a significant slowdown in growth this year, though economists see no recession
Some economists believe that resulting tightening in financial market conditions could discourage Federal Reserve from further raising
interest rates this year.
The Fed increased borrowing costs last month for fourth time in 2018, but forecast fewer rate hikes this year and
signalled its tightening cycle is nearing an end in face of financial market volatility and slowing global growth.
Despite signs of slowing
economic growth, labour market appears strong
The ADP National Employment Report on Thursday showed private payrolls jumped 271,000 last month after increasing 157,000 in November
Economists polled by Reuters had forecast private payrolls advancing 178,000 last month
The ADP report, which is jointly developed with Moody's Analytics, was published ahead of government's more comprehensive employment report
for December scheduled for release on Friday.
The ADP report has a spotty record predicting private-payrolls component of government's
employment report and last month's surge probably exaggerates strength of labour market because of a seasonal quirk
"The ADP employment report has been susceptible to large swings in December that we think may be in part due to a year-end quirk that has
tended to result in ADP printing high relative to payrolls in final month of year," said John Ryding, chief economist at RDQ Economics in
New York.
Still, other labour market indicators were strong in December, including consumers' perceptions of job market.
According to a
Reuters survey of economists, nonfarm payrolls likely increased by 177,000 jobs last month after rising 155,000 in November
The unemployment rate is forecast steady near a 49-year low of 3.7 per cent.
With labour market viewed at being at or beyond full
employment, pace of job growth is slowing as employers struggle to find workers
Some of moderation in employment gains has been attributed to stock market rout.
A third report from Labor Department showed initial claims
for state unemployment benefits rose 10,000 to a seasonally adjusted 231,000 for week ended Dec
Claims have now increased for three straight weeks
Claims data tends to be noisy around year-end holidays
The four-week moving average of initial claims, considered a better measure of labour market trends as it irons out week-to-week volatility,
slipped 500 to 218,750 last week.
"The claims data suggest that conditions in labour market have softened relative to a few months ago when
claims readings were very upbeat, but extent of any deterioration is not entirely obvious and does not look extreme at this point," said
Daniel Silver, an economist at JPMorgan in New York.
