–ISM Manufacturing Index at 49.0 Vs. 50.3 in February, Below Consensus (49.6)
–ISM’s Fiore: Activity ‘Overshadowed’ by US Import Tariffs; So Many Unknowns, More Confusion
–Fiore: Still Think Lower New Orders, Higher Inventories, Slower Supply Deliveries Will Clear Up
–Fiore: Tariffs Could Prompt Workers Hit by Higher Costs of Living to Demand Wage Hikes, Triggering Wage-Price Cycle
By Max Sato
(MaceNews) – U.S. manufacturing activity slipped back into contraction in March after two months of growth as many firms, confused and uncertain over the Trump administration’s protectionist trade policy, trimmed production and workers in response to lower demand and surging costs.
The latest monthly data released Tuesday by the Institute for Supply Management also showed that about two-thirds of the surveyed firms were focused on the impact of existing and upcoming import tariffs and retaliatory measures by major U.S. trading partners ahead of the administration’s “reciprocal tariffs” expected to be unveiled Wednesday.
The ISM sector index fell 1.3 percentage points to 49.0 in March, below the median economist forecast of 49.6, after slipping 0.6 point to 50.3 in February and rising 1.7 points to 50.9 in January, the first time the index had popped above the make-or-break line of 50.
“Demand and production retreated and destaffing continued, as panelists’ companies responded to demand confusion,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement. “Prices growth accelerated due to tariffs, causing new order placement backlogs, supplier delivery slowdowns and manufacturing inventory growth.”
Fiore told reporters that as many as 68% of the respondents’ comments were about the tariffs in the March survey, overshadowing supply chain management activity.
Fiore was asked whether he would stick to his comments made last month that the combination of lower new orders, higher inventories and slower supply deliveries was a “one-month blip and thus should “clear up” in March or April.
“I think they will clear up,” he replied. “The imposition of tariffs is going to have a one-time hit.” But he also noted that more tariffs were expected to come and that the impact seen in the March report was primarily from the tariffs on steel and aluminum imports as well as those on Chinese-made products that had already been imposed. “If we are only dealing with those tariffs, this thing will resolve itself probably by the time we get to May.”
President Trump is expected to impose “reciprocal tariffs” on trading partners on Wednesday, targeting countries and regions that have a trade surplus with the United States. The action is aimed at reducing the trade deficit but it will also push up import costs that would hurt U.S. households and businesses.
Trump has already slapped 25% tariffs on Canadian and Mexican imports to the U.S. and an additional 10% on China over illegal immigration and drug trafficking for which he blames those countries. He has also imposed a 25% tariff on all imported autos and auto parts.
On the question of whether U.S. manufacturers would benefit from the import tariffs and a shift of overseas factories back to domestic locations as administration officials have claimed, Fiore said, “I do not see tariffs as being a way to reassure U.S. manufacturing and maintain the same cost structure that we have today,” he said, pointing that U.S. firms import various goods produced offshore because it is less expensive to do so.
Fiore warned that tariffs may raise the cost of living, which in turn could prompt workers to demand wage hikes to match the price increases, triggering an upward wage-price cycle. “We are still in that one-time event and that is still clipping our demand and we still have the input side to accelerate,” he said.
Among the five subindexes that directly factor into the manufacturing PMI, three were in negative territory: the new orders index at 45.2 (-3.4 points), production 48.3 (-2.4) and employment 44.7 (-2.9). Two were above the key 50 line: supplier deliveries 53.5 (-1.0) and manufacturer inventories 53.4 (+3.5).
The new orders index contracted in March for the second consecutive month after three consecutive months of expansion. It stood at 45.2, down 3.4 points from 48.6 in February and hitting the lowest since May 2023 (43.4).
The index hasn’t indicated consistent growth since a 24-month streak of expansion that ended in May 2022.
The production index fell 2.4 points to 48.3, slipping into contraction territory after two consecutive months of expansion. Previously, the index had been in contraction territory for eight consecutive months. Prior to the first two months of 2025, the last time the index registered above 50 was in April 2024 (50.7).
The employment index stood at 44.7, falling 2.9 points from 47.6 the previous month, posting its second straight month of contraction after expanding in January, with seven straight months of contraction before that. Since May 2022, th index has contracted in 28 of 35 months. “Freezing and attrition were the primary tools used for the second straight month, in lieu of the more dramatic and costly layoff process,” Fiore said.
Delivery performance of suppliers to manufacturing organizations was slower in March. The supplier deliveries index (the only one that is inversed) stood at 53.5, down a full point from 54.5 in February, indicating slower delivery performance for the fourth straight month and the eighth in the past 12 months.
The manufacturing inventories index indicated the first growth in seven months, rising 3.5 points to 53.4 in March from 49.9 in February. The index has gained 7.5 points the last two months to reach its highest level since October 2022, when it was also at 53.4. Companies continued to pull forward (advance) deliveries of materials in an attempt to minimize the financial impacts of potential tariffs, Fiore said.
Among other subindexes, the prices paid index continued surging in March, up 7.0 points at 69.4 after soaring 7.5 points to 62.4 in February. It remains the highest since 78.5 recorded in June 2022, when price pressures were easing month by month.