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Manufacturing accounts for just 11 percent of the country’s gross domestic product, but it is often seen as a harbinger of what lies ahead for the economy. Stocks fell on Wall Street after the release of the report, from the Institute for Supply Management, with the S&P 500 index down about 1 percent by the early afternoon.
“Manufacturers are plainly panicking here,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “They’re pessimistic about the outlook.”
The institute’s manufacturing index was at 49.1 for August, down from 51.2 in July. Anything below 50 is considered a sign of contraction. The index is based on a survey of purchasing and supply managers.
Economists had expected the index to show a slight gain for August, making the drop all the more surprising and leaving the index at its lowest level since January 2016.
The manufacturing report follows several other indicators that have suggested economic weakness. On Wall Street, short-term bond yields now exceed the return offered by longer-term notes, a sign a recession could be coming.
The institute’s survey is essentially a measure of business confidence. The latest figure echoed a University of Michigan survey released last week that showed consumer confidence experiencing its biggest drop since 2012.
