Northwest Arkansas Democrat-Gazette
FACTORY GAUGE falls in December.
Production, other indexes also off, but payroll gains noted
A gauge of U.S. manufacturing plunged last month by the most since October 2008, a fresh sign of deceleration in the economy during global strains across the sector. U.S. stocks extended declines and Treasury yields fell after the report. The Institute for Supply Management index dropped to a two-year low of 54.1, missing all estimates in Bloomberg’s survey, data showed Thursday. All five main components declined, led by new orders slumping the most in almost five years and the steepest slide for production since early 2012. Employment, delivery and inventory gauges fell, and the institute said just 11 of 18 industries reported growth in December, the fewest in two years. On a brighter note payroll processor ADP said Thursday that U.S. businesses added a robust 271,000 jobs in December, according to a private survey. ADP said last month’s job gains marked a sharp upturn from November’s gain of 157,000. The gains, if backed up by government numbers due today, could be strong enough to reduce the unemployment rate. But the factory production index, compiled from a survey of manufacturers, has tumbled sharply from a 14-year high in August, though it remains above the 50 dividing line between ex-
pansion and contraction. The 5.2-point drop from the previous month has been exceeded just twice this century, both times during recessions: in the financial crisis a decade ago and after the Sept. 11, 2001, terror attack. Such weakness adds to signs that President Donald Trump’s trade war and a fading lift from fiscal stimulus are weighing on American producers. Previous reports showed five Federal Reserve indexes of regional manufacturing all slumped in December, the first time they’ve fallen in unison since May 2016. “This is grim,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a research note, adding that “the story here is that the trade war, coupled with China’s underlying slowdown, is wreaking havoc in both countries.” Signs of trade-related spillovers in the world’s largest economies and other exportoriented nations are multiplying. China’s official factory gauge has fallen into contractionary territory, and a global manufacturing index from JPMorgan Chase and IHS Markit dropped to the lowest level since September 2016. On Wednesday, Apple Inc. cut its revenue outlook for the first time in almost two decades, citing weaker demand in China. The U.S. is set to resume trade talks with China next week. If they fail to produce a deal, the U.S. is set to raise tariffs on $200 billion worth of Chinese imports in March. Some businesses have been reluctant to invest until they see what happens to U.S.-China trade relations. “There’s a lot of uncertainty,” said Timothy Fiore, chair of the institute’s manufacturing survey committee. “Things just aren’t getting resolved. The thing that businesses hate is uncertainty, and we’ve got a ton of it.” The measure of new orders fell to 51.1 while the reading for production dipped to 54.3, both the lowest since 2016. The index of supplier deliveries slumped to a one-year low of 57.5, indicating bottlenecks remain but are easing. Gloomier data may give Fed policymakers, who have already said they intend to slow the pace of interest-rate increases, more reason to pause. Ahead of Thursday’s report, Dallas Fed President Robert Kaplan said the central bank should put rates on hold as it waits to see how uncertainties about global growth, weakness in interestsensitive industries and tighter financial conditions play out. Meanwhile, the institute’s gauge of prices paid fell to 54.9, the lowest since June 2017. While that may largely reflect the recent plunge in oil, it adds to signs of contained inflation that provide little urgency for Fed rate increases. Overall, the U.S. economy looks healthy. At 3.7 percent, the unemployment rate is near a 50-year low. Growth clocked in at a brisk annual pace of 3.4 percent from July through September. The burst of hiring last month comes as financial markets are dreading a broader economic slowdown, causing stock prices to collapse. But job growth at December’s pace suggest that the U.S. economy is unlikely to fall into a recession, said Mark Zandi, who prepares the ADP jobs report as chief economist at Moody’s Analytics. The ADP covers only private businesses and often diverges from official figures, which also include government hiring.