An IHS Markit “flash” survey of U.S. manufacturers fell to a nine-and-a-half year low of 50.6 this month from 52.6 in April. Manufacturing conditions have been soft for months.
Even more ominous, the firm’s survey of U.S. service-oriented companies such as banks and retailers slipped to a 39-month low of 50.8 from 52.7. Service companies employ about four-fifths of all U.S. workers. Until recently they’ve been expanding rapidly.
Any number over 50 signifies that companies are growing, but the sharp decline in the indexes this year suggests the U.S. economy could slow in the months ahead, especially if the dispute with China drags on.
What happened: The growth in new orders from both domestic customers and foreign buyers declined and firms “put the brakes on hiring," IHS said.
Big picture: The ongoing trade war with China and resulting tit-for-tat tariffs has taken a toll on American companies. They’ve lost some sales, had to find new suppliers and are generally hesitant about what to do next because of trade tensions.
What they are saying? “Growth of business activity slowed sharply in May as trade war worries and increased uncertainty dealt a further blow to order book growth and business confidence,” said Chris Williamson, chief business economist at IHS Markit. “The slowdown has been led by manufacturing, but shows increasing signs of spreading to services.”
Market reaction: The Dow Jones Industrial Average DJIA, -1.22% and S&P 500 SPX, -1.13% fell in Thursday trades on worries that the U.S.-China impasse could drag on for months. The weak Markit readings added to the pressure on stocks.
Read: Monster clash over trade dwarfs all other issues about the U.S. economy
The 10-year Treasury yield TMUBMUSD10Y, -2.11% slipped to 2.36%. The yield has sunk from a seven-year high of 3.23% last October, largely because the Fed junked plans to keep raising interest rates. Trade worries have also pushed yields lower.