US Dollar Flat As Weak Manufacturing Data Raises Recession Fears

The US dollar is trading flat against a basket of currency rivals to kick off the holiday-shortened trading week. Financial markets took a dive on recent data that suggests the nation’s manufacturing sector is contracting amid the lingering US-China trade war. But there are other factors that are contributing to the index’s weakness as of late, which still might not convince the bulk of investors.

On Tuesday, the Institute for Supply Management (ISM)’s manufacturing index for August came out and it was not pretty. Last month, the ISM index tumbled to 49.1%, from 51.2% in July, which is the lowest since January 2016 and is worse than median estimates of 51.0. Any reading below 50% indicates a contraction in activity.
ISM experts say that the new orders index fell 3.6 points to 47.2% and the production index declined 1.3 points to 49.5%. Also, just half of the 18 manufacturing industries had reported gains in August, and just three posted new orders growth.
Meanwhile, IHS Markit released its manufacturing purchasing managers’ index (PMI) and the data showed a modest improvement in August. The manufacturing PMI edged up to 50.3% last month the initial flash reading of 49.9%. But it was still down from 50.4% in July and represents the lowest reading since September 2009.
The consensus is that the manufacturing industry is taking a beating by the US-China trade dispute. It makes sense considering that the ISM index has plummeted 10 points since the trade spat initiated last summer. But there are other factors at play, including slumping motor vehicle sales Boeing’s issues with its fleet of 737 MAX jets.
The remaining months should provide greater clarity as to whether the trade war is the lead variable or not. The US increased its tariffs on $112 billion in Chinese goods on Tuesday, sending the market lower.
Is a recession on the horizon? There is a lot of concern that it is.
The next major set of data comes on Wednesday when the US Census Bureau reports the balance of trade, imports, and exports. An imbalance of $53.5 billion is being projected for July.
The USD/CAD currency pair rose 0.05% to 1.3334, from an opening of 1.3327, at 19:43 GMT on Tuesday. The EUR/USD was flat at 1.0973.

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