Markets plunge as US enters manufacturing recession

Andre Damon

The US manufacturing sector has entered recession—defined as two quarters of contraction—the Institute for Supply Management said Tuesday, falling to the lowest level since the immediate aftermath of the 2008 financial crash.

The figure is only the latest in a series of negative economic indicators that contributed to a substantial selloff in the US and global stock market Wednesday.

The World Trade Organization (WTO) said that growth in trade this year would be the lowest in a decade, amid the eruption of a trade war that it called a “destructive cycle of recrimination.”

World trade will grow by only 1.2 percent this year, the WTO reported. Just six months ago, it expected trade to grow at 2.6 percent this year.

Markets around the world plunged in response to the figures. The Dow Jones Industrial Average fell 494.42 points, or 1.9 percent, after a 1.3 percent drop the day before. The S&P 500 had its worst two-day selloff of the year. All three major US stock indexes are below their values over the past 12 months.

The UK stock market had its worst day in over three years, with the FTSE 100 closing 3.2 percent lower.

Aircraft being assembled [via Canva Pro]

But the global trade war, which is dragging down economic growth worldwide, is only intensifying. After the markets closed Wednesday, the White House announced the imposition of an additional $7.5 billion in tariffs on imports from the European Union.

The measures, targeting European aircraft, will be the most aggressive US trade measures against the EU since Washington imposed tariffs on steel and aluminum last year.

The negative economic figures are putting increased pressure on the Federal Reserve board to cut interest rates at its next meeting this month. The Wall Street Journal reported that the likelihood of another Federal Reserve rate cut this year rose to 89 percent, up from 73 percent a week earlier.

Responding to the negative economic data Tuesday, US President Donald Trump wrote on Twitter: “As I predicted, Jay Powell and the Federal Reserve have allowed the Dollar to get so strong, especially relative to ALL other currencies, that our manufacturers are being negatively affected. Fed Rate too high. They are their own worst enemies, they don’t have a clue. Pathetic!”

Trump has repeatedly demanded that the Federal Reserve take a more accommodative monetary policy, and has sought to blame it for a slump in the stock market.

Under pressure from Trump and substantial sections of Wall Street, the Federal Reserve has abruptly reversed course from its plans to “normalize” monetary policy after a decade of bailouts, “quantitative easing” and zero percent interest rates.