This big "water hammer" in the making is pretty much gone now

The manufacturing sector has been one of the big winners of the Trump administration, but the increase seems to have slowed down and prices could be at least partly responsible.

Recent readings from the sector show that the activity has declined significantly compared to the hot spot that he had indicated for most of 2018. The Institute for Supply Management's Gauge has indicated plans to hardly expansionary, while the Markit Purchase Managers global index indicated a contraction.

Although these measures may change course once the tariff issue is resolved, current conditions show that one of the pillars of Trump's expansion is beginning to waver.

"The slowdown in US manufacturing in the United States, which is taking place in many of the candidate states, has already faded," said Binky Chadha, chief strategist at Deutsche Bank, in a research note. . "In our opinion, a continuing decline, especially a drop below 50, will be difficult to make other than as a manufacturing recession."

The May ISM index is set at 52.1, essentially a percentage representing manufacturers who plan to increase their business. This means that a reading below 50 means that more companies are planning to reduce their activities.

The index went from 51.8 when Trump took office at the peak of 60.8 in August 2018, the year in which US GDP grew by nearly 3% and was one of the strongest levels of activity since the start of the recovery, mid-2009. However, a long battle against trade with China and the threat of a second front with Mexico eased over the weekend weighed on the manufacturing sector.

Several ISM respondents said the rates were crimping business.

A food, beverage and tobacco officer said that tariffs "have a significant impact on the cost of goods", while another chemical official said the levies had "imposed a change of strategy of our supply chain ". A defendant in plastics and rubber products said that duties on imports from China "posed a problem for a number of chemicals and materials that are solely produced in China."

On a global basis, the Markit PMI for the manufacturing sector fell to 49.8 in May, its lowest level since October 2012 and the first impression of less than 50 years since February 2016.

The manufacturing industry had been moody for most of the recovery but had finally regained foothold after the election of President Donald Trump in November 2016.

In addition to strengthening ISM trends, the sector has recorded solid employment growth – about 498,000 since the elections, nearly half of the total of 1.1 million during the recovery – but only 13,000 over the past year. first five months of 2018.

Chadha added that if the sector continues to weaken, it could cause a backlash in Trump's commercial rhetoric. Chadha said the president had stepped up tariff talks during periods when the stock market had shown strength, and then cut back on tough talk about weakness.

"So, even if there is a put, it's not very effective.In our opinion, a more likely and imminent trigger of sustained de-escalation is the state of manufacturing in the US." United, where the retreat of Isman has already been wiped out, and the outlook is downward continuously, bringing back recession levels, "wrote Chadha.

A palpable retreat in the manufacturing industry would "change the discourse" on trade, as would a marked decline in Trump's drafting approval, the strategist added.

Another aspect that Chadha advised investors to follow is the criticism of the Federal Reserve by Trump.

The president has repeatedly called on the central bank to cut rates, especially during an impromptu interview Monday morning with CNBC.

Chada said that Trump's anti-Fed tweets took place before tariff escalation, especially just in April, just before the recent increase in China's levies.