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US manufacturing enters contraction territory, survey finds

The U.S. manufacturing sector contracted for the first time since August 2016, the culmination of months of softening expansion, according to new survey data from the Institute for Supply Management.

The manufacturing purchasing managers' index, or PMI, registered its lowest reading since January 2016 in August, slipping to a seasonally adjusted reading of 49.1% from 51.2% recorded in the prior month. The Econoday consensus estimate was for a reading of 51.3% in August. Readings above 50% indicate growth.

The new orders index slumped to 47.2% in August from 50.8% in July, and the production index dropped to 49.5% from the prior month's 50.8%. Supplier deliveries was the only PMI sub-index to register some expansion, with the index slowing to 51.4% from 53.3%.

Manufacturers' sentiment declined to its lowest level in 2019 amid increased concerns about U.S.-China trade tensions. "Respondents continued to note supply chain adjustments as a result of moving manufacturing from China," said Timothy Fiore, chair of the Institute for Supply Management's manufacturing business survey committee.

Meanwhile, the seasonally adjusted IHS Markit final U.S. manufacturing PMI came in at 50.3 in August, higher than the flash estimate and Econoday consensus estimate of 49.9 but lower than the prior month's index of 50.4.

The latest reading reflected the weakest rate of growth since September 2009, led by subdued new order growth and output rates, IHS noted.

New export orders declined at the steepest pace since August 2009, with a number of firms citing trade wars and tariffs as reasons for the decline. Weakening demand conditions, particularly in the automotive industry, were attributed to subdued client demand.

Expectations for output in the year ahead fell to a new series low amid concerns surrounding a global economic slowdown.

The latest figures suggest that the goods-producing sector is likely to weigh on GDP growth in the third quarter, the IHS' Chief Business Economist Chris Williamson noted.

Readings above 50 in the IHS survey indicates an overall monthly increase.