U.S. manufacturing activity contracted for the first time in three years in August, with new orders and hiring declining as trade tensions weighed on business confidence, which could renew fears of a sharp economic slowdown.
Other data on Tuesday showed construction spending barely rising in July. Data on consumer spending had suggested that while the economy was slowing, it was not losing momentum as rapidly as financial markets were flagging.
The Institute for Supply Management (ISM) said its index of national factory activity dropped to a reading of 49.1 last month from 51.2 in July. A reading below 50 indicates contraction in the manufacturing sector, which accounts for about 12% of the U.S. economy. Last month marked the first time since August 2016 that the index broke below the 50 threshold.
August’s reading was also the lowest since January 2016 and was the fifth straight monthly decline in the index. The ISM said there had been “a notable decrease in business confidence,” adding that “trade remains the most significant issue, indicated by the strong contraction in new export orders.”
Economists polled by Reuters had forecast the ISM index would slip to 51.0 in August. The year-long U.S.-China trade war is eroding business sentiment, with business investment contracting in the second quarter for the first time in more than three years.