Economic activity in the manufacturing sector expanded in March for the third consecutive month, said U.S. supply executives in the latest ISM Manufacturing PMI Report.
ISM’s index registered 52.7% in March, a 0.3-percentage point increase compared to February. The overall economy continued expansion for the 17th month in a row. A PMI index below 50% indicates an industry in contraction.
The S&P Global US Manfacturing PMI showed similar trends, registering 52.3, up from 51.6 in February.
However, the war in Iran, rising prices and “tariff chaos” are all worrisome signs and could curtail further expansion, Susan Spence, chair of ISM’s Manufacturing Business Survey Committee, said during a media call on Wednesday.
The New Orders Index expanded for the third straight month after four straight readings in contraction, registering 53.5%, down 2.3 percentage points compared to February. The Production Index registered 55.1%, 1.6 percentage points higher than last month.
The Supplier Deliveries Index indicated a further slowing for the fourth month in a row with a reading of 58.9%, up 3.8 percentage points from last month. The Inventories Index registered 47.1 percent, down 1.7 percentage points.
The Employment Index registered 48.7 percent, down 0.1 percentage point. Manufacturing lost 12,000 in Februrary, with the plastics and rubber products and transportation equipment sectors taking the biggest hit.
Most worryingly, the Prices Index registered 78.3 percent, a 7.8-percentage point jump from February. In the last two months, the prices index has increased 19.3 percentage points to reach its highest level since a reading of 78.5 percent in June 2022.
Two demand indicators — new orders at 53.5% and backlog of orders at 54.4% — were also in expansion, while new export orders contracted at 49.9%. Meanwhile, customers’ inventories registered at 40.1%, up from 38.8% in February. That is still in the “too low” category, which is “usually considered positive for future production,” Spence said in the report.
Higher prices, war and tariff anxiety
Spence said during the call that one of the biggest takeaways from this month’s report is the price index, which is “very, very concerning and going in the wrong direction.” Seventeen out of 18 sectors showed price increases, she said. The only sector that did not see price increases was Printing and Related Support Activities.
The war in Iran and continued anxiety over tariffs and other trade policies do not bode well either, Spence added. Although the percentage of negative comments from survey respondents remained about the same as last month, the reasons for those comments have changed, she said.
Although companies received some relief from the U.S. Supreme Court’s ruling overturning many of the Trump administration’s original tariffs under the International Emergency Economic Powers Act, subsequent tariffs and other shifting trade policies are causing companies to delay hiring and investment decisions, Spence said.
Comments from survey respondents generally backed up her assessment. Some said the war in Iran is raising energy prices, while others said it is forcing companies to realign supply chains, raising manufacturing supply costs, and otherwise impacting business operations.
All of this threatens future economic expansion. “Our concern is that demand indicators going in the wrong direction, if that continues, will reverse the production expansion trend,” Spence said on the call.
