US manufacturing activity index drops to 49.1%, amidst tariff war

Amidst the ongoing Sino-American trade war, a leading gauge of U.S. manufacturing activity fell into contraction territory last month.

For the first time during U.S. President Donald Trump's tenure, the Institute for Supply Management's manufacturing index dropped to a reading of 49.1% in August - from 51.2% in July. The reading also came in lower than the 51.5% that economists had projected for August.

Any reading below the 50% level for the above-mentioned index is an indication of contraction in manufacturing activity.

Manufacturing accounts for 12% of U.S. gross domestic product (compared to consumer spending share of around 70%). The manufacturing survey should not typically signal a recession in the overall economy until readings fall below 42.9%, according to the institute.

While much of the U.S.-China tariff war narrative apparently centers around the objective of boosting U.S. industries, the decline in U.S. manufacturing activity could potentially imply headwinds to U.S. producers from rising tariff-induced costs of buying inputs/materials.