Stocks

Dow Drops as U.S. Manufacturing Activity Slows

The Institute for Supply Management’s manufacturing index was weaker than expected in August, showing that manufacturing activity declined for the first time in three years. Its reading of 49.1 was lower than economists’ forecasts; readings below 50 indicate contraction.

The Institute for Supply Management’s manufacturing index was weaker than expected in August, showing that manufacturing activity declined for the first time in three years. Its reading of 49.1 was lower than economists’ forecasts; readings below 50 indicate contraction.

Stocks and Treasury yields extended their losses an unexpected decline in U.S. manufacturing activity highlighted the consequences of the trade war with China.

Major stock indexes started the day with declines, and then extended those losses on news that manufacturing activity fell for the first time in three years. The Institute for Supply Management reported an August reading of 49.1, which was lower than economists’ forecasts. Readings below 50 indicate contraction.

The latest data come at a sensitive time, as stocks have been swinging on investor worries about the U.S.’s trade war with China. The concern is that, about a decade into the recovery from the financial crisis, a full-blown trade war could create a substantial drag on the global economy and push the U.S. into recession. The bond market’s most reliable recession indicator has been flashing red since March.

Investors aren’t the only ones concerned about trade, as Tuesday’s ISM report made clear. A panel of executives surveyed by ISM displayed a “notable decrease in business confidence,” according to the report. Tiffany Wilding, Pimco’s U.S. economist, points out that ISM data are considered to be a leading indicator. That means the outlook for the manufacturing sector is worsening.

The S&P 500 and Dow Jones Industrial Average both fell further after the 10 a.m. report. The Dow was down 1.2% around 12 p.m. EDT, while the S&P 500 and Nasdaq Composite were down 0.6% and 0.8%, respectively.

Treasury yields turned lower after the ISM report. The 10-year benchmark yield fell five basis points, or hundredths of a percentage point, to 1.45%. The steepest decline was at the five-year maturity, where yields fell seven basis points to 1.32%.

Write to Alexandra Scaggs at alexandra.scaggs@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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