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US business activity slows as manufacturing contracts for first time in a decade

Olesya Dmitracova
AFP/Getty Images

US business activity has slowed to a snail’s pace as the dominant service sector hardly grew this month, while manufacturing shrank for the first time in a decade.

The Flash US Composite Output Index – a measure of the US economy’s health – came in at 50.9, just above the 50 level that separates growth from contraction versus one month ago. That is the lowest reading in three months and the joint-lowest since February 2016.

The index is based on surveys of service and manufacturing firms, with each sector given its own index. The reading for services was 50.9, also the lowest in three months. For factories, the index stood at 49.9, indicating the first contraction since September 2009.

“August’s survey data provides a clear signal that economic growth has continued to soften in the third quarter,” said Tim Moore, economics associate director at IHS Markit which compiles the data.

“The PMIs for manufacturing and services remain much weaker than at the beginning of 2019 and collectively point to annualised GDP growth of around 1.5 per cent.”

The poor manufacturing measure was mainly a result of a fall in new orders, while output continued growing, IHS Markit said. The data also showed the fastest drop in factories’ export sales in 10 years, with firms often citing the weakening in the global economy.

The surveys are likely to fuel fears that the trade war with China instigated by Donald Trump is starting to hurt US factories.

Mr Moore added: “Business expectations for the year ahead became more gloomy in August and remain the lowest since comparable data were first available in 2012.”

Most US business economists expect a recession in the US by the end of 2021, according to a survey by the National Association for Business Economics released on Monday.