In years to come it may well be called “Trumponomics”, it may well be taught in colleges too, Its effects are unclear, though most economists see them as calamitous. Now just at the wrong time for Trumponomics, it is reported that the U.S. manufacturing purchasing managers index (PMI) declined to 49.9 in August, the lowest level for almost a decade. A reading above 50 indicates growth in the manufacturing sector, which accounts for about 12% of the U.S. economy. It is clear the cacophony created by Trump around trade war has weighed heavily on activity as investment wanes.
The latest manufacturing PMI reading signalled the sharpest order book downturn in ten years. Export sales during August 2019 were also at their lowest since August 2009. According to Tim Moore, an associate economics director at IHS Markit, “August’s survey data provides a clear signal that economic growth has continued to soften in the third quarter.” He added, “Manufacturing companies continued to feel the impact of slowing global economic conditions, with new export sales falling at the fastest pace since August 2009.”
The services sector PMI reading also fell to 50.9 from July’s 53.0. This was also below economists’ expectation of 52.9. It was one of the most concerning aspects of the latest data, as new business growth slowed down to its weakest level in a decade “driven by a sharp loss of momentum across the service sector.”
Though it must be said the US is not alone in the contraction of manufacturing index PMI’s. China has had contraction for 4 straight months as have the EU.
On a weekly-average basis, both Brent and WTI gained slightly; however, both crude benchmarks ended the week lower than they began it. Brent increased $0.62/bbl to average $59.87/bbl (only slightly below our $60/bbl forecast) while WTI increased $0.23/bbl to average $55.55/bbl. There are concerns that China prepared to tough it out with the US.
President Trump has claimed that Chinese officials have reached out in a desire to resume trade negotiations. The market has become increasingly wary of President Trumps claims and since the Chinese have not confirmed his statement it is well worth discounting. The Chinese at least publicly have always maintained they would prefer a negotiated trade deal and not an escalation. Only last week Trump was railing at US firms doing business in China, ‘ordering’ them back to the US . The Trump Administration is pursuing a policy of ‘decoupling’ the US economy from China and ending any interdependency the countries might have. The trade war with China only sees signs of escalation as Trump has vowed to change the worlds trading system to favour the US against a determined, focussed and motivated China.
President Trump has made the return of US manufacturing jobs and their protection the cornerstone of his ‘make America Great Again’ policy. A policy many would argue put him in the White House. Yet along with yield curve inversion concerns, the contraction in US manufacturing has increased the market’s concerns regarding an upcoming recession. Perversely it would seem that President Trumps policy of restructuring the US trade by initiating a trade wars against China has quite the opposite effect