U.S. manufacturing activity falls to lowest level in a decade

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ISM's monthly manufacturing index fell to 47.2 percent, a drop of almost a full point, and the opposite direction from expectations of economists, who projected a rebound.

USA manufacturing sector activity slowed further last month amid weak order growth and soft demand across most sub-sectors, the results of a closely-followed survey revealed. Economists polled by Reuters had been looking for an increase to 49.0. December's reading for U.S manufacturing PMI, as per ISM, is the lowest since June 2009 when the economy was struggling to recover from the market crash.

"Global trade remains the most significant cross-industry issue, but there are signs that several industry sectors will improve as a result of the phase-one trade agreement between the USA and China", Timothy R. Fiore, chair of Institute for Supply Management, said in a statement.

Still, the survey of companies by ISM shows that manufacturers have suffered. "Sales are decent, but we're wondering what 2020 will bring", said one manager from the transportation equipment industry.

While the two largest economies of the world announced last month that a phase 1 trade deal has been finalized and is likely to be signed and officialized in January, the announcement came towards the end of the month and failed to stir optimism for December's purchasing managers' index. "We're still in that range of slight contraction to slight expansion".

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Typically the index would have to drop below 43 to signal the risk of a wider economic recession.

Last week, the Federal Reserve argued in a paper that import tariffs hurt USA manufacturing.

Even though the USA economy is driven primarily by consumer spending, the on-going manufacturing slump is affecting GDP forecasts for the final quarter of 2019. ISM highlighted that factory employment in the country dropped for the fifth month in a row while order volumes were recorded the worst in the past 11 years.

The Imports Index registered 48.8%, a 0.5-percentage point increase from the November reading of 48.3%.

At this time a year ago, the Fed had wrapped up a year when it had boosted interest rates four times.

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