Manufacturing takes a turn for the worse

Key indicator dives in June

By Lydia DePillis, CNN Business
Bill Pugliano/Getty Images

WASHINGTON, D.C. - A key indicator of the health of the manufacturing sector tanked in June, suggesting that business sentiment around new tariffs is starting to bite.

The Empire State Manufacturing Survey, which measures how factories in New York State view the state of their business, fell much more than expected in June: a record 26 points, to the lowest level since October 2016. The figure, -8.6, is the first negative number in more than two years.

A reading below zero indicates that the sector is actually contracting. It had been growing — albeit at a slower pace — for more than a year. The dip was driven by a decline in employment, the length of the workweek and new orders. And it's not the only indicator showing a turn for the worse: Others, including the Federal Reserve Bank of Philadelphia's Manufacturing Business Outlook Survey, have also been sinking steadily.

Manufacturers are sensitive not just to the actual imposition of tariffs, but also to the threat of new tariffs. That fear has escalated in recent weeks, as President Donald Trump continued to hold open the possibility of 10% duties on an additional $300 billion in goods from China — even as he backed off on the idea of taxing Mexican imports as leverage in his campaign for more restrictions on cross-border migration.

China's retaliatory tariffs on US goods have also had a dramatic effect, with exports to China declining 20% year-over-year in April. It comes amid a global manufacturing slowdown, driven by factors including weak purchases of automobiles and slowing consumer spending in China.

"Threats to the global growth outlook from trade protectionism have become much more significant in recent months," wrote Fitch Ratings in a report released Wednesday. Even without the threatened new tariffs, Fitch downgraded its forecast for global growth in 2019, blaming policy uncertainty caused by the Brexit situation and the breakdown of trade negotiations between the US and China.

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