US factory activity unexpectedly hits 10-year low as Trump's trade war persists

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US factory activity unexpectedly hits 10-year low as Trump's trade war persists

american factory

AP

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  • A key gauge of American factory activity unexpectedly contracted for a second straight month in September.
  • The Institute for Supply Management said Tuesday its manufacturing index fell to levels not seen since the global financial crisis 10 years ago.
  • A dispute President Donald Trump ignited with China last year has added pressure to a broader slowdown in the manufacturing sector.
  • Visit the Business Insider homepage for more stories.

A key gauge of American factory activity unexpectedly contracted for a second straight month in September to levels not seen since the global financial crisis.

The Institute for Supply Management said Tuesday its manufacturing index dropped to 47.8 last month, the lowest since June 2009 and compared with forecasts for an increase from 49.1 in August. Readings above 50 indicate expansion in the sector, while those below 50 point to contraction.

A dispute President Donald Trump ignited with China last year has added pressure to a broader slowdown in the manufacturing sector. Tariffs on thousands of products have raised costs, disrupted supply chains, and cast uncertainty on business plans.

Manufacturing accounts for about 12% of gross domestic product. But a slowdown could affect other parts of the economy if it begins to dent household outlooks, said Ian Shepherdson, the chief economist at Pantheon Macroeconomics.

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"The trade war is wreaking havoc," he said. "This means that if consumers' confidence seriously falters, the U.S. could tip into the first recession ever caused directly by the actions of the President rather than the action of tight monetary policy on an overstretched private sector."

But Trump has repeatedly sought to shift blame to the Federal Reserve for weakness in the manufacturing sector, which he pledged to reinvigorate as a presidential candidate in 2016.

"As I predicted, Jay Powell and the Federal Reserve have allowed the Dollar to get so strong, especially relative to ALL other currencies, that our manufacturers are being negatively affected," the president wrote on Twitter. "Fed Rate too high. They are their own worst enemies, they don't have a clue. Pathetic!"

A separate measure of factory activity out Tuesday showed output increased last month. But the IHS Markit results still showed the weakest quarterly reading since 2009.

Read more: Dan Fuss is revered as 'the Warren Buffett of bonds.' He walked us through the investing approach that's delivered market-beating returns and turbocharged his 61-year career.

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Now read: China extends olive branch ahead of trade talks, says it plans to buy US soybeans and pork

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