Via Financial Times

The US manufacturing sector contracted at a slightly faster rate in November, confounding economists who anticipated a rebound in factory activity, and reigniting Wall Street’s concerns over the fallout from US-China trade tensions.

The Institute for Supply Management said in its monthly survey the index measuring domestic factory activity fell to 48.1 last month from 48.3 in October, amid weakness in new orders and exports.

It was the fourth consecutive month of contraction in the sector, though it remains in a stronger position than in September when the index was at its worst level in a decade. Economists expected it to hit 49.2 last month, according to a Thomson Reuters poll. A reading below 50 indicates contraction.

Timothy Fiore, chair of ISM’s manufacturing business survey committee, said sentiment improved month-to-month but is neutral regarding near-term growth. “Global trade remains the most significant cross-industry issue,” Mr Fiore said.

Also on Monday, the Census Bureau said construction spending in October fell 0.8 per cent compared with September levels, an unexpected fall against economists’ forecast for a 0.4 per cent increase.

Stocks sold off while bond prices rose, sending yields lower, in reaction to the glum data. The S&P 500 was down 0.8 per cent, and the tech-heavy Nasdaq Composite fell 1.2 per cent. The yield on the 10-year Treasury yield was up 5.2 basis points at 1.8276, below its highs for the day. The US dollar index dropped 0.4 per cent.

US manufacturers have come under pressure amid slower economic growth globally, while prolonged trade negotiations between the US and China have weighed on business confidence.

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The decline in the closely watched ISM gauge “illustrates that the manufacturing sector isn’t yet out of the woods”, said Andrew Hunter, senior US economist at Capital Economics.

ISM’s sub-index for new orders matched an August reading of 47.2, which was the lowest in seven years. “This measure continues to indicate that capital goods orders are likely to be weak in coming months,” said Joshua Shapiro, chief US economist at MFR.

The manufacturing sector’s struggles contrast with the larger services sector, whose growth accelerated in October versus the prior month, and upbeat consumer spending signals, creating a mixed bag of US economic data. Overall the nation’s economy grew at an annualised rate of 2.1 per cent in the third quarter, compared with 2 per cent in the previous quarter.

A downbeat view of US factories tempered optimism out of Asia, where the Caixin-Markit PMI index showed China’s manufacturing sector expanded at its fastest pace in three years last month. In the eurozone, manufacturing activity was in contraction for a 10th consecutive month, but a stronger reading on output provided hope that the sector has turned a corner.

For America’s manufacturers, “there is mounting evidence to suggest that the downturn will soon bottom out”, Mr Hunter said, citing in part the global surveys.

He added: “Nonetheless, even if conditions stabilise soon, our view that the global backdrop will remain unusually weak over the next year means that we don’t expect a meaningful recovery in the US manufacturing sector for some time.”