What China’s Disappointing Manufacturing Report Means for the US Economy

Major markets around the world are recoiling after a new report from China revealed that the country’s vast manufacturing sector is shrinking.

According to a Caixin survey published today, the Purchasing Managers’ Index dropped from 50.2 in November to 49.7 in December — the first time in 19 months and its lowest level since May 2017.

The figures mirror data from the National Bureau of Statistics, which noted that the index fell to 49.4 last month, from 50 the previous month. (The private survey is centered on small and midsize companies, while the official PMI index deals with large and state-owned businesses.)

“China’s manufacturing sector faced weakening domestic demand and subdued external demand in December,” remarked Zhengsheng Zhong, director of macroeconomic analysis at the CEBM Group, a subsidiary of Caixin. “Companies had a stronger intention to destock, and prices of industrial products were declining, which could further drag on production. It is looking increasingly likely that the Chinese economy may come under greater downward pressure.”

The report comes amid tit-for-tat trade frictions between China and the United States, which reached a 90-day ceasefire that delayed the Trump administration’s increase of tariffs on $200 billion worth of Chinese imports scheduled to take place on Jan. 1. President Donald Trump and his Chinese counterpart, President Xi Jinping, are in the process of negotiating a possible trade deal, on which the former recently said the duo has made “big progress.”

China is also facing an economic slowdown following three decades of robust growth, contributing to investor worries that a deceleration in the world’s second-largest economy would negatively impact global markets.

Benchmark indexes in the U.S. have suffered greatly in 2018, recording their the worst year of trading since the 2008 financial crisis. Last month alone, the Dow Jones Industrial Average marked its largest single-month slide since February 2009 and its worst-performing December since the Great Depression in 1931.

As talks continue between Washington and Beijing, many companies are bracing for impact should additional tariffs take effect. A number of retailers have already expressed concerns about passing on costs to consumers or relocating production lines outside of China.

“If those trade issues persist and are allowed to deepen, that will start to have a deleterious effect on the economy, and it’ll show up everywhere, from manufacturing to consumer confidence — you name it,” American Apparel & Footwear Association EVP Steve Lamar said in a mid-December interview with FN.

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