U.S. manufacturers continued to struggle in March, IHS Markit’s preliminary read of its manufacturing purchasing managers’ index showed on Friday, with the index tumbling to its weakest level in nearly 2 years as the global economy shows broad signs of weakness.
The flash U.S. Manufacturing PMI slid to 52.5, down from 53.0 in February. A consensus forecast of economists expected the index to check in at 53.5. A reading above 50 denotes the manufacturing sector is still expanding.
In February, the reading tumbled to its lowest since August 2017, amid a slowdown in output and new orders. It also confirms a trend of a sharply decelerating global economy, confirmed on Friday by weak PMI readings in France and Germany, the euro zone’s two economic locomotives. Germany’s reading plunged to a multi-year low of 44.7.
“A gap has opened up between the manufacturing and service sectors, however, with goods-producers and exporters struggling amid a deteriorating external environment and concerns regarding the impact of trade wars,” noted Chris Williamson, IHS-Markit’s chief business economist.
“The survey is consistent with the official measure of manufacturing production falling at an increased rate in March and hence acting as a drag on the economy in the first quarter,” he added.
Friday’s PMI figures underscore how the U.S. is facing the crosswinds of uncertainty surrounding global trade and a decelerating economy — as evidenced by February’s surprisingly weak jobs data .
Meanwhile, Treasury bond yields are signaling a potential economic slump, as investors demand higher compensation for holding shorter-dated paper as compared to longer-term debt. The so-called yield curve inversion is widely perceived as a harbinger of a coming recession, a fear some economy watchers have raised with increasing frequency.
On Wednesday, the Federal Reserve indicated it was concerned about a slowdown, holding interest rates steady and mapping out a plan to curtail efforts to shrink its bloated balance sheet.
Given that the U.S. economy is heavily reliant on consumer spending, IHS noted that the service sector is “holding up relatively well.”
That said, “the worry is that manufacturing woes are spreading to service providers, via reduced demand for services such as transport and storage as well as deteriorating business optimism about the outlook...and a cooling of the labour market,” Williamson added.
“The survey showed hiring across both manufacturing and services hit the weakest for just under two years in March,” he said.
In early U.S. trading, fears about global growth cascaded across global markets, driving down risk-sensitive assets. The S&P 500 ( ^GSPC ), the Dow ( ^DJI ) and the Nasdaq ( ^IXIC ) all tumbled by about 1% in the wake of the PMI data.
Javier David is an editor for Yahoo Finance. Read more:
Follow Javier on Twitter: @TeflonGeek