Data out Tuesday showed activity in the manufacturing sector slipped into contraction for the first time this year and costs continued to surge as suppliers weigh the impact of President Trump’s tariff policy.
The Institute for Supply Management’s manufacturing PMI registered a reading of 49.0 in March, down from February’s 50.3 reading and below the 49.5 economists polled by Bloomberg had expected. Readings above 50 for this index indicate an expansion in activity, while readings below 50 indicate a contraction.
The prices paid index surged to 69.4, up from 62.4 the month prior and the highest reading since June 2022, reflecting companies’ continued increase in costs. Economists had expected a reading of 64.6.
“Demand and production retreated and destaffing continued, as panelists’ companies responded to demand confusion,” Institute for Supply Management chair Timothy Fiore wrote in the release. “Prices growth accelerated due to tariffs, causing new order placement backlogs, supplier delivery slowdowns and manufacturing inventory growth.”
Many survey respondents cited increased uncertainty due to tariffs as companies attempt to restock inventories ahead of future policy rollouts, with reciprocal levies set to come as soon as Wednesday.
Notably, new orders fell to the lowest reading since May 2023.
“The slight dip in the ISM manufacturing index in March suggests that, rather than triggering a reshoring factory renaissance, the uncertainty surrounding President Trump’s tariff threats are depressing activity,” Harry Chambers, assistant economist at Capital Economics, wrote in reaction to the data.
“While the prices paid index is still some way below its pandemic [level], even after rising again in March, it seems likely to increase further next month once more tariffs come into effect,” Chambers said. “There’s a whiff of stagflation in the air.”
Shortly following the data’s release, the Federal Reserve Bank of Atlanta’s GDPNow tracker, which analyzes incoming data points, signaled negative growth of 3.7% in Q1, an escalation of the prior negative 2.8% reading.
Another reading on manufacturing activity out Tuesday also raised concerns over Trump’s tariff uncertainties. The final reading of S&P Global’s manufacturing PMI hit 50.2 in March, down from a strong 52.7 in February.
Despite the slowdown, it was the third month the index registered a reading above 50 “but only just.”
“The PMI signaled a marginal improvement in operating conditions that was the weakest of the year so far,” S&P Global said in the release, noting a drop in production for the first time since December weighed heavily on the headline index while order books expanded only modestly.
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