US factory activity unexpectedly slowed last month for the first time in 3 years - and Trump's trade war was the main culprit

• US factory activity unexpectedly fell in August for the first time since January 2016.
• The contraction came as the US-China trade war continued to reduce demand for products from American manufacturers.
• The Institute for Supply Management's purchasing managers index - a closely-tracked gauge of US manufacturing - slumped to 49.1 last month.
• The new reading comes after the US and China both slapped fresh tariffs on billions of dollars worth of exports starting September 1.
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US manufacturing activity dipped in August for the first time in three years as domestic manufacturers continue to grapple with fallout from the US-China trade war.

The Institute for Supply Management said its closely-watched purchasing managers index slid to 49.1 in August to a level lower than any analysts expected, according to Bloomberg. A reading below 50 typically indicates growth in the manufacturing sector is weakening.

The ISM consults more than 300 executives within purchasing and supply chain management to collect the date for the purchasing managers index.

"Comments from the panel reflect a notable decrease in business confidence," Timothy Fiore, the chair of ISM, said in a press release. "Respondents expressed slightly more concern about US-China trade turbulence, but trade remains the most significant issue, indicated by the strong contraction in new export orders."

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The institute's new order measure dropped to a seven-year low, suggesting tariffs are dampening demand for new products from US producers. The new orders index fell to 47.2, down from 50.8 in July and the first time the gauge has dropped below 50 since December 2015.

The concerning readings comes just days after the US and China imposed a new round of tariffs on billions of dollars worth of products starting September 1 in the latest escalation of the trade war. It also joins a growing number of signs that the US could be headed for a recession.

The US economy slowed by more than originally throught in the second quarter, IHS Markit said its preliminary gauge of US manufacturing activity fell for the first time a decade in August, and the University of Michigan's consumer-sentiment index posted its sharpest drop in six years last month.

A widely-followed segment of the so-called yield curve, which tracks the spread between yields on short- and long-dated Treasuries inverted several times in August. Investors often view the occurrence as a harbinger of an economic downturn, as it has preceded every recession since 1950.