ISM manufacturing index drops to lowest level in a decade

The ISM index declined to 47.8 from 49.1 in August, missing expectations for an increase to 50.1 and remaining below the 50 mark that separates contraction from expansion.

Timothy R. Fiore, chair of the ISM, said: "Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019. Overall, sentiment this month remains cautious regarding near-term growth."

The new orders index ticked up to 47.3 in September from 47.2 the month before, while the production index printed at 47.3 from 49.5. The employment index fell to 46.3 from 47.4 and the prices paid gauge came in at 49.7 compared to 46 in August.

Paul Ashworth, chief US economist at Capital Economics, said the slump in the ISM index will reignite fears that the US economy is headed for a recession, "but our guess is that this weakness is at least partly due to the all-out strike at GM, which began in mid-September".

"Nevertheless, it reinforces our belief that, despite the hawkish protestations of some officials in recent days, the Fed will still cut interest rates by a further 25 basis points at December’s FOMC meeting," he added.

Pantheon Macroeconomics said:"This survey is a not consistent with recession across the whole economy. But the warning signs here are clear enough.

"The trade war is wreaking havoc, to the point where the incipient upturn in manufacturing in China is not transmitting, at all, to the US. This means that if consumers’ confidence seriously falters, the US could tip into the first recession ever caused directly by the actions of the President rather than the action of tight monetary policy on an overstretched private sector."