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The US manufacturing sector has contracted for the first time in three years, data on Tuesday showed, as the US-China trade war weighed on the industrial economy and added to fears about slowing domestic growth. 

The Institute for Supply Management’s index fell 2.1 percentage points to 49.1 last month, missing expectations for a reading of 51.1, according to economists surveyed by Thomson Reuters. 

“While business is strong, there is an undercurrent of fear and alarm regarding the trade wars and a potential recession,” said one respondent to the institute's survey.

This marked the first time since August 2016 that the index fell below 50, indicating a contraction, and represented its lowest level since January 2016. The data “will undoubtedly add to fears that more weakness is ahead”, said Jim O’Sullivan, chief US economist at High Frequency Economics.

Manufacturing growth has been in steady decline for months. Since September of last year, the US industrial production index, a measure of mining and manufacturing activity prepared by the US Federal Reserve, has fallen from 3.9 to 0.5. A number below zero indicates a contraction. In July, the manufacturing index alone fell to -0.5. 

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But the details of Tuesday's ISM report were ugly, with new orders, production and employment sub-indices all contracting last month. New export orders shrunk for the second consecutive month and fell to their lowest since April 2009, when global trade was hit following the financial crisis. 

“Respondents expressed slightly more concern about US-China trade turbulence, but trade remains the most significant issue, indicated by the strong contraction in new export orders,” said Timothy Fiore, chief of the ISM manufacturing business survey committee. “Respondents continued to note supply chain adjustments as a result of moving manufacturing from China.”