The manufacturing sector in the United States experienced moderate expansion in March, but the outlook is under pressure. Energy shocks may drag down future growth.

The recent resilience of the US manufacturing industry is evident, but potential risks are building up. The latest surveys show that US manufacturing activity continued to rebound in March, but the industry outlook remains fragile due to rising energy prices and supply chain uncertainties. Data shows that the S&P Global Manufacturing Purchasing Managers' Index (PMI) rose to 52.4 in March, higher than February's 51.6; the Kansas City Fed manufacturing index also rose from 5 in February to 11, reaching its highest level since July 2022; and the Chicago Fed manufacturing activity index also significantly rebounded. This indicates that, against the backdrop of increasing external shocks, the US manufacturing industry is still maintaining a moderate expansion. Analysts point out that the recent strength in the manufacturing industry is partly due to companies engaging in "advance ordering" and "inventory replenishment" behaviors. With the expectation of rising energy prices, companies tend to lock in orders in advance to deal with future cost pressures. However, this demand front-loading effect also means that the momentum for future growth may weaken. At the same time, price pressures have increased significantly. Surveys show that the price increase of product sales in March was the largest since August 2022, reflecting the trend of energy costs being transmitted to the manufacturing industry. Profit prospects for businesses have also diverged, as some companies expect demand improvements while more companies are concerned that rising costs will squeeze profit margins. Employment, on the other hand, is showing weakness. Overall employment in the S&P data has seen its first decline in over a year, with manufacturing job growth dropping to its lowest level in nearly eight months, and service sector employment showing a decline as well. Market participants believe that the impact of oil prices is inhibiting companies' desire to hire, which is weighing on the labor market. High oil prices remain the biggest uncertainty factor. Goldman Sachs expects that short-term traffic in the Strait of Hormuz will only recover to about 5% of normal levels, and Brent oil prices may remain around $110 per barrel in April. As a result, the US unemployment rate may rise to 4.6% in the third quarter of this year, up from February's 4.4%. Looking more broadly, the risks of economic downturn are increasing. Gregory Daco, Chief Economist at EY-Parthenon, says that if oil prices continue to be above $100 per barrel, US inflation could rise to nearly 5%, real GDP growth could be dragged down by over 1 percentage point, and the probability of an economic recession has risen to 40%. Although factors such as tax refunds may provide some support for consumption in the short term, rising energy prices and inflationary pressures are expected to limit economic growth. Analysts generally believe that if the oil price shock leads to demand contraction, it will pose a significant challenge to the manufacturing industry, with industry growth slowing gradually.