Manufacturing Hits Lowest Point In Over a Decade

On Friday, the Institute for Supply Management (ISM) announced that its Manufacturing Index fell to 47.2 in December. In addition to a monthly overview of production activity, the index provides a snapshot of economic activity in general. A number above 50 indicates a growing manufacturing sector and leads to bullish investments; below 50 indicates a contracting one and could point to turmoil ahead. After five straight months of contraction, the index has reached its lowest level since June of 2009.

Research from ISM and other organizations suggests that the ongoing trade war between the United States and China is to blame. A recent survey from the US-China Business Council found that 80% of member organizations had experienced adverse effects as a result of tariffs and other changes to trade policy. Just 20% suggested they are "optimistic" about their future in the region.

Timothy Fiore, chair of ISM's Manufacturing Business Survey Committee, acknowledges the impact of the trade war. "Global trade," he remarked, "remains the most significant cross-industry issue." He notes that survey respondents continue to describe the challenges of transitioning their operations out of China. He is hopeful, however, that certain industries will benefit from the upcoming phase one trade agreement. President Trump announced last week that he will sign the agreement on January 15th and immediately begin negotiations on the next phase.

While tariff increases were ostensibly meant "to boost the U.S. manufacturing sector," the Federal Reserve Board suggests they have done just the opposite. Last month, the board reported that tariffs "have not led to increased activity in the US. manufacturing sector." The report concludes that tariffs have succeeded only in reducing employment throughout the manufacturing sector and increasing producer pricing.

It is not yet clear which industries can hope to benefit from next week's agreement. Supply Chain Dive suggests the President has hinted at relief for the agricultural, energy, and manufacturing sectors. A full third of CPOs named the trade war as their most distressing risk factor entering the new year. Regardless of industry, they are hopeful that the events of January 15th lead to more amicable trade relations throughout 2020.