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Weak manufacturing measures raise specter of U.S. economic slowdown

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Workers assemble second-generation R1 vehicles at electric auto maker Rivian’s manufacturing facility in Normal, Illinois, U.S. June 21, 2024. 

Joel Angel Juarez | Reuters

U.S. factories remained in slowdown mode in August, fueling fears about where the economy is headed, according to separate manufacturing gauges.

The Institute for Supply Management monthly survey of purchasing managers showed that just 47.2% reported expansion during the month, below the 50% breakeven point for activity.

Though that was slightly above the 46.8% recorded for July, it was below the Dow Jones consensus call for 47.9%.

“While still in contraction territory, U.S. manufacturing activity contracted slower compared to last month. Demand continues to be weak, output declined, and inputs stayed accommodative,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

“Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and election uncertainty,” he added.

While the index level suggests contraction in the manufacturing sector, Fiore pointed out that any reading above 42.5% generally points to expansion across the broader economy.

It was a weaker-than-expected reading last month that sent markets further into a tailspin, ultimately costing the S&P 500 about 8.5% before recovering most of the losses. Stocks added to losses following the latest ISM release on Tuesday, with the Dow Jones Industrial Average off nearly 500 points.

Another weak economic reading raises the probability the Federal Reserve will be cutting interest rates by at least a quarter percentage point later this month. Following the ISM report, traders raised the odds of a more aggressive half-point reduction to 39%, according to the CME Group’s FedWatch measure.

With the survey, the employment index edged higher to 46% while inventories jumped to 50.3%. Regarding inflation, the prices index nudged higher to 54%, possibly giving the Fed some pause when deciding on the extent of the fully priced in rate cut.

The ISM results were backed up by another PMI reading from S&P, which showed a decrease to 47.9 in August from 49.6 in July.

The S&P employment index showed a decrease for the first time this year, while the input cost measure climbed to a 16-month high, another sign that inflation remains present if well off its mid-2022 highs.

“A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter. Forward-looking indicators suggest this drag could intensify in the coming months,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Economics

Trump tariffs could cause summer economic slump: Chicago Fed president

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Austan Goolsbee, President and CEO of the Federal Reserve Bank of Chicago, speaks to the Economic Club of New York in New York City, U.S., April 10, 2025. 

Brendan McDermid | Reuters

Business owners and CEOs are already stocking up on inventory, and some American shoppers are panic buying big-ticket items in anticipation of President Donald Trump’s tariffs. The sudden buying binge could cause an “artificially high” level of economic activity, said Federal Reserve Bank of Chicago President Austan Goolsbee.

“That kind of preemptive purchasing is probably even more pronounced on the business side,” Goolsbee told CBS’ “Face The Nation” on Sunday, adding: “We heard a lot about preemptive building-up of inventories that could last 60 days, 90 days, if there [was] going to be more uncertainty.”

Businesses stockpiling inventory and consumers accelerating their purchasing decisions — buying an Apple iPhone now, say, rather than waiting until the fall — may inflate U.S. economic activity in April and lead to a slowdown in the coming months, Goolsbee suggested.

“Activity might look artificially high in the initial, and then by the summer, might fall off — because people have bought it all,” he said.

Sectors affected by Trump’s tariffs, particularly the auto industry, are most likely to heavily stock up on inventory now before import levies on goods from other countries potentially rise further, said Goolsbee. Many car parts, electronic components and other big-ticket consumer items are manufactured in China, for example, which currently faces a 145% total tariff rate on goods imported to the United States.

Trump’s tariffs on a bevy of other countries are currently in the middle of a 90-day pause, with a 10% baseline tariff rate instead applying to all imported goods across the board. The pause is due to expire on July 9, with Trump touting a series of rate negotiations with foreign leaders between now and then.

“We don’t know, 90 days from now, when they’ve revisited the tariffs, we don’t know how big they’re going to be,” Goolsbee said.

Some U.S. business owners who buy goods manufactured in China say they already can’t afford to place rush orders on inventory. Matt Rollens, owner and CEO of Granite Bay, California-based novelty drinkware company Dragon Glassware, says he’s temporarily holding his products in China because paying the 145% levy would force him to raise consumer prices by at least 50%, likely drying up customer demand.

Rollens has enough inventory in the U.S. to last roughly until June, and hopes the tariffs will be rolled back by then, he told CNBC Make It on April 11.

Short-term uncertainty and financial pain aside, the Fed’s Goolsbee expressed optimism about the country’s longer-term economic outlook.

“If we can get through this, it’s important to remember: The hard data coming into April was pretty good. The unemployment rate [was] around steady full employment, inflation [was] coming down,” he said. “It’s just a desire of people expressing they don’t want to back to ’21 and ’22, at a time when inflation was really raging out of control.”

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Economics

Donald Trump wants a certain kind of immigrant: the uber-rich

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IN HIS LOVE of lucre Donald Trump can be crass. In their pursuit of efficiency, free marketeers can be, too. Consider the sale of citizenship. Most people dislike the idea of treating national belonging as a commodity. Yet about a dozen countries hawk passports and more than 60, including America, offer residency in exchange for an investment or donation. Its “golden-visa” scheme is cumbersome, under-priced and inefficient. On this point the president and the market agree.

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Economics

Checks and Balance newsletter: The Democrats’ future is up for grabs

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Checks and Balance newsletter: The Democrats’ future is up for grabs

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