The trade confrontation with China and slowing global growth did not fail to affect the us economy. However, while it was expressed only in the fact that in August industrial output declined for the first time over the past 3 years.
The survey, conducted by the Institute for Supply Management, registered a sharp decline not only of this indicator, but new orders, which may indicate that the situation will persist for some time. In addition, companies of the sector began to cut jobs, and it is possible that brewing problem for the whole economic system in General.
The U.S. is not alone in these problems — as reported by the consulting
firm IHS, Markit, reduction
industrial activity is observed in Europe and in most Asian countries (in total 17 of the 30), and in these cases the cause is a trade conflict between Washington and Beijing.
Foreign markets also decreased the demand for American goods. And more than half of respondents conducted by the ISM, said the uncertainty is the main obstacle to further business development.
According to the study, the manufacturing index, which stood at 51.2 points in July, decreased in August to 49.1, which was the minimum, starting from January 2016. But if the rate is less than 50 points, it indicates a decline in activity. Although consumer activity remains high, occurring in this industry may lead to a slowdown in creation of new jobs and a General weakening of the economy. Not surprisingly, as soon as the results became known, the Dow Jones Industrial Average lost 372 points, thus a decrease of 1.4%.
While things in the industry do not give grounds to believe that a recession is brewing, although the probability of such events has increased. Less than 50 points was the index measuring new orders, which means that in the next few months to improve the situation one can hardly expect. So the coming months will show, do not start the decline, for which there would be no reason, if not for the actions of the White house.
However, there is a chance to avoid negative consequences, since, for example, a similar decline in activity in the industry occurring in 2016, does not lead to recession. Then a significant decline in oil prices in 2015 and reduce the cost of agricultural products have caused the cuts in the size of investment by mining companies and farmers who simply did not need additional equipment. Accordingly, decreased as the production of such equipment, and the production volumes of steel, and the result is a reduction of business expenses turned out that the growth of gross domestic product in 2015 was equal to 2.9%, in 2016 amounted to only 1.6%.
Something similar is observed and at the present time, only the original cause of hindering the development of companies and their acquisition of durable goods, are the events in the trading field. For them business costs in the second quarter fell for the first time in 2016. But while the industry is not reacting — if in may 2016 the number of employees in this field have been lower than 12 months earlier, from July 2018 over the same period, there have been more than 150 thousand jobs, although their creation in recent times is not so active.
During the confrontation with China introducing tariffs on imported steel and aluminum, according to President Donald trump, was to help American manufacturers, but the effect was the opposite. In the ISM also noted that since the beginning of September began to operate the new duties, this time covering consumer goods, so that they will lead to higher retail prices. And, apparently, this is not the last measure, which is ready to go the White house.
As emphasized by Timothy Fiore, the Chairman of the Committee for the study of industrial business ISM new orders was less mainly due to the decline in demand for foreign products, which generally reached a minimum for the period since April 2009, when the financial crisis has affected global trade. Now, the businesses are seeking new suppliers in order to save on the payment of fees, and it will take time.
Uncertainty fuels and the weakness of the global economy. Index, IHS, Markit, reflecting the state of industry in all countries in July increased by
0.2 points, but still remained negative, amounting in August to 49.5 points. The decrease in activity occurred, particularly in Japan, South Korea and Taiwan.
Perhaps it would have been noted in China, if the local government does not offset the effect of a reduction in the number of orders with investments in infrastructure, which ensured further development. And in Germany, activity in July remained close to at least 7 years, and as the decline in demand, the company not only reduced manufacturing activity, but also began layoffs.