U.S. manufacturing activity declined in March, reversing two months of modest growth, as new orders, production, and employment all contracted, according to the Institute for Supply Management (ISM).
The ISM Manufacturing Purchasing Managers’ Index® (PMI) fell to 49%, down from 50.3% in February. A PMI below 50 indicates contraction in the manufacturing sector. While overall economic activity continued to expand for the 59th straight month, the manufacturing downturn signals growing strain from tariffs, supply chain uncertainty, and global tensions.
“Demand and production retreated and destaffing continued,” said Timothy R. Fiore, Chair of ISM’s Manufacturing Business Survey Committee. “Companies are revising production plans downward in the face of economic headwinds.”
Key Indicators Slide
New orders declined for the second consecutive month, with the index falling to 45.2%, the lowest since May 2023. The Production Index dropped to 48.3%, while employment in the sector weakened further, with that index falling to 44.7%.
Backlogs also shrank, and export orders dipped into contraction territory at 49.6%, as some manufacturers cited hesitancy from foreign buyers amid rising trade tensions. Inventories, on the other hand, grew—likely a preemptive move ahead of expected tariff-related cost increases.
Tariff Concerns Driving Behavior
Supply executives pointed to tariffs as a major factor shaping purchasing and production decisions. Steel and aluminum prices rose sharply, contributing to a 69.4% reading in the Prices Index—up seven points from February.
“Companies are pulling forward materials to avoid higher costs,” Fiore noted, adding that increased inventories and slower deliveries reflected temporary moves tied to trade policy uncertainty.
Industry Reactions Mixed
Just nine of 18 tracked industries reported growth in March, with textile mills, petroleum and coal products, and fabricated metals among the top performers. Meanwhile, sectors like wood products, chemicals, and food and beverage contracted.
Survey respondents expressed concerns ranging from supply shortages and inflationary pressures to waning customer demand. Some noted that order volumes were being front-loaded to sidestep potential price hikes, while others cited slowing international sales due to retaliatory tariffs.
Outlook Remains Uncertain
The share of manufacturing GDP showing signs of deep contraction (PMI at or below 45%) rose to 7% in March, up from 2% in February. While the broader economy remains in expansion, the manufacturing sector’s struggles could weigh on future growth if current trends persist.
The next ISM manufacturing report, covering April data, will be released May 1.
