By Jeffry Bartash, MarketWatch
The numbers: American manufacturers said business grew in May at the slowest pace in two and a half years, reflecting disruptions caused by the trade standoff with China as well as softer auto sales, a survey of executives found.
The Institute for Supply Management said its manufacturing index slipped to 52.1% last month from 52.8% in April. Economists surveyed by MarketWatch had forecast the index to total 52.6%.
Readings over 50% indicate more companies are expanding instead of shrinking, but the index has fallen to the lowest level since the month before Donald Trump was elected president.
The index is compiled from a survey of executives who order raw materials and other supplies for their companies. The gauge tends to rise or fall in tandem with the health of the economy.
What happened: The ISM index fell mostly because of lower production and a decline in quickly suppliers can fill orders for manufacturers.
The production index slipped to 51.3%, the lowest reading since August 2016. The index for supplier deliveries fell to 52% from 54.6%.
Yet new orders rose slightly, taking some chill out of the report, and employment also rose.
Big picture: The U.S. is going through a turbulent stretch marked by increasingly tough policies or threats of action against China and Mexico, two of the country’s three largest trading partners. Auto sales have also tapered off after a long boom following the end of the 2007-2009 recession.
The economy is expected to break a record for longest expansion ever at the end of the month, but it’s expanding more slowly compared to a year earlier. That’s likely to remain the case until the fights with China and Mexico are sorted out.
“There are still many positive signs, but the uncertainty around trade policy is a growing risk that can’t be overlooked — and nowhere is that more apparent than in the manufacturing sector,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors.
What they are saying? “Sales remain strong. Labor remains tight. Tariffs are having a significant impact on cost of goods,” said an executive at a company that makes food and beverages.
“Newly increased tariffs on Chinese imports pose an issue on a number of chemicals and materials that are solely produced in China. We are expecting increases in raw materials starting June 1,” said an executive at a company that makes plastic and rubber products.
Market reaction: The Dow Jones Industrial Average (DOW:DJIA) and S&P 500 (S&P:SPX) rose in late-morning Monday trades. Stocks have been battered over the past few weeks after President Trump threatened to raise tariffs on Mexico and increased in duties on Chinese goods.
The 10-year Treasury yield (XTUP:BX:TMUBMUSD10Y) also fell to a fresh low of 2.11%. The yield has retreated from a seven-year high of 3.23% last October.