Trade tensions, labour shortages loom over US factories

WASHINGTON: US manufacturing activity slowed in July amid signs that a robust economy and import tariffs were putting pressure on the supply chain, which could hurt production in the long-term.
Other data on Wednesday showed private employers stepped up hiring in July, suggesting strength in the labour market and the overall economy at the start of the third quarter. The economy’s vibrancy was acknowledged by the Federal Reserve, which described activity as “rising at a strong rate.”
But analysts expect the economic momentum to slow because of capacity constraints at factories and cooling global demand.
“The rest of the year will be more challenging,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “Businesses are already having a tough time with tight labour markets and finding qualified workers and they have to deal with higher costs and slowing demand from overseas.”
The Institute for Supply Management (ISM) said its index of national factory activity fell to a reading of 58.1 last month from 60.2 in June. A reading above 50 indicates expansion in manufacturing, which accounts for about 12 per cent of the US economy.
The ISM described demand as remaining robust and noted “employment resources and supply chains continue to struggle.” It also said manufacturers were “overwhelmingly concerned about how tariff-related activity, including reciprocal tariffs, will continue to affect their business.”
President Donald Trump’s “America First” trade policy has embroiled the United States in tit-for-tat tariffs with major trade partners including China, Canada, Mexico and the European Union, which Trump says are taking advantage of the United States.
Analysts have warned that import duties could disrupt supply chains, undercut business investment and put a brake on strong economic growth. While the ISM’s supplier deliveries sub-index dropped 6.1 points to 62.1 last month, the reading remained high after racing to a 14-year peak in June.
Economists say trade tensions and the robust economy, marked by labor shortages and strong domestic demand, are behind delivery delays.
— Reuters