A measure of U.S. manufacturing activity unexpectedly fell inMay to the lowest level since October 2016, in a sign thatPresident Donald Trump's trade war with China is weighing on the economyas he considers further tariffs.

The Institute for Supply Management's (ISM's) purchasingmanagers index declined to 52.1 from 52.8, missing the medianforecast of 53 in Bloomberg's survey but holding above the 50 markthat indicates expansion. Three of five components declined,including production, inventories, and supplier deliveries,according to a report Monday.

Key Insights

• The ISM index's lowest reading of Trump's presidency—down froma 14-year high in August —follows a slew of other economic datathat suggest the sector was on shakier ground even before thelatest escalation of tariffs between the U.S. and China began topinch margins. A separate factory PMI released Monday by IHS Markitalso fell, dropping to the weakest level since 2009.
• Producers, who already faced headwinds from slowing globalgrowth and inflated inventories, may face additional fallout afterTrump's threat last week to impose tariffs on all imports fromMexico. Sustained weakness would dent economic growth and could bea factor that prompts the Federal Reserve to cut interest rates, asinvestors and some economists expect.
• ISM's production gauge dropped to 51.3 in May, the lowest levelsince August 2016, even as the gauge of backlogs declined to atwo-year low. At the same time, the measure for new ordersincreased, as did the employment gauge, a sign of possible strongerhiring in manufacturing ahead of the May employment report.
• The measure of exports increased, rising back above 50, whilethe imports gauge decreased for a third month to a two-year low of49.4.

—With assistance from ChrisMiddleton.

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