The US ISM manufacturing activity shrank for the first time this year, with the price index rising significantly due to the impact of tariffs.

After two months of brief expansion, the US manufacturing industry slipped back into contraction in March. The latest Manufacturing Business Report from the Institute for Supply Management (ISM) showed that the Purchasing Managers' Index (PMI) for manufacturing dropped to 49%, a 1.3 percentage point decrease from February's 50.3%. The new orders index continued to shrink for the second consecutive month, falling to 45.2%, a decrease of 3.4 percentage points from the previous value; the production index fell to 48.3%, ending two months of expansion; the employment index further contracted to 44.7%, indicating that businesses are continuing to reduce staff in the face of economic uncertainty. Meanwhile, the backlog of orders index dropped to 44.5%, reflecting ongoing weak demand, and the supplier deliveries index, although slightly decreased to 53.5%, still indicated slowed deliveries; the import index remained in the expansion range at 50.1%; while the new export orders index fell to 49.6%, re-entering the contraction zone. Additionally, due to tariff impacts, the price index surged by 7 percentage points to 69.4%, reaching the highest level since mid-2022; and the manufacturer's inventory index rebounded to 53.4%, reversing the six-month contraction trend. Some companies have been stockpiling goods early to avoid the impact of tariffs, but overall market demand remains weak, and business confidence in future economic prospects has weakened. Timothy R. Fiore, chairman of the ISM Manufacturing Business Survey Committee, pointed out that while manufacturing demand and output are weak, the input side (including supplier deliveries, inventory, prices, and imports) is expanding, sending negative signals for economic growth. Businesses are facing rising cost pressures due to tariffs, while backlogs of orders, new orders, and export demand continue to decline, prompting factories to adjust production plans and exacerbating the trend of job cuts. 46% of manufacturing GDP shrank in March, a significant increase from 24% in February, with the proportion of manufacturing GDP below the 45% PMI threshold rising to 7%, reflecting a worsening overall manufacturing outlook. Among the six major manufacturing industries, only petroleum and coal products, computers and electronic products, and transportation equipment industries maintained expansion, while wood products, paper products, plastics and rubber products, furniture and related products, chemicals, food and beverage products, and machinery industries all experienced varying degrees of contraction. Several manufacturing companies reported that soft market demand, increased inventory, global economic instability, and tariff uncertainties have heightened operational pressures. Some companies have tried to increase inventory early to cope with potential cost increases, but the overall demand trend remains uncertain. The interviewed companies generally stated that tariffs, supply chain tensions, and changes in the global economic environment will continue to shape the future of the manufacturing industry.