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    CHESTO MEANS BUSINESS

    Trade issues prompt local manufacturers to paint a gloomy picture

    Specialist Gennaro Saporito, left, and trader Robert Moran work on the floor of the New York Stock Exchange, Thursday, July 18, 2019. U.S. stocks moved lower in early trading on Wall Street Thursday after Netflix reported a slump in new subscribers and dragged down communications companies. (AP Photo/Richard Drew)
    Richard Drew/Associated Press
    Specialist Gennaro Saporito (left) and trader Robert Moran worked on the floor of the New York Stock Exchange.

    Optimism abounds on Wall Street, if the stock market’s recent peaks are any indication.

    Talk to local manufacturers, and you will get a much gloomier view.

    One major red flag appeared on Wednesday in the New England section of the Federal Reserve’s latest Beige Book, a roundup of regional economic conditions. Manufacturers are not pleased with this country’s trade policy, and many are lowering their business outlooks for the year as a result.

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    As with other Beige Book surveys, the sample size is small, the data anecdotal. But the picture painted by the seven manufacturers contacted by Boston Fed researchers isn’t a pretty one, especially considering the apparent health of the broader US economy. (As is typical, the Fed keeps its sources anonymous.)

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    Local manufacturers say the country’s trade policy is causing them to face higher costs, reduced demand for their products, and more uncertainty. They’re scaling back on big purchases, or at least delaying them. Five of the seven contacts reported flat or reduced employment. One electronics manufacturer cut staff by 10 percent because of the tariffs, and moved an assembly line from the United States to Germany to avoid tariffs on Chinese-made components.

    The Trump administration’s stated goal is to boost domestic jobs. But economists say the ongoing fight with China could have the opposite effect, as the US tariffs and China’s retaliation work their way into the economy.

    Many manufacturers are trying to find overseas alternatives to China to source their supplies — sometimes without much luck.

    These concerns are showing up in Associated Industries of Massachusetts’ monthly polls. The employer group’s business confidence index, which relies heavily on input from manufacturers, in May hit its lowest point of the past 12 months. The index recovered modestly in June — to its second-lowest point in the past year.

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    As measured by employment, manufacturing has become one of the state’s weakest sectors. The sector has lost an estimated 1,800 jobs, a decline of 0.7 percent, from a year ago.

    Kristen Rupert, a senior vice president at AIM who specializes in international trade, says many of her group’s members initially tried to absorb the costs of the tariffs. That was easier when the tariffs represented a 10 percent increase. Twenty-five percent? At that level, manufacturers usually pass along some of these new expenses to customers — and, ultimately, to consumers. (Rupert recently heard about a local shop owner who was upset about the rising costs of toys.)

    Manufacturers seem resigned to the fact that the China-US trade tiff won’t end anytime soon. You can’t blame them for getting nervous when President Trump talks about placing tariffs on another $325 billion of Chinese imports, as he did on Tuesday at a Cabinet meeting. (Even those relentlessly optimistic investors on Wall Street didn’t seem happy with the saber-rattling.) Treasury Secretary Steve Mnuchin took the opposite approach, by buoying hopes that he could soon resume face-to-face trade talks with Beijing.

    Fed officials typically sift through the Beige Book interviews, looking for signs of a possible recession on the horizon. The negativity may help explain why they are worried enough about the economy to talk about a potential interest rate cut. Manufacturers weren’t the only complainers in New England, though they seemed to be the loudest. Retailers reported single-digit declines in comparable store sales, for example, and some local software and IT firms reported modest declines in demand.

    But most of the reports from the field were largely in line with what Boston Fed researchers’ colleagues found in other parts of the country. The bottom line: Modest growth is expected, at least in the near future, even in the face of widespread concerns about trade issues. How long that growth can continue is an entirely different question.

    Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.