The ISM Manufacturing Index pulled back to 49.0 in March from 50.3 in January, and a smidge weaker than the 49.5 expected.
Nine of 18 industries reported growth for the month – down from ten in February. In another sign of slowing momentum, 46% of manufacturing GDP contracted in March, up from 24% in February and 43% in January.
Demand conditions deteriorated. The new orders index sank further into contraction (45.2, 48.6 in February), and new export order growth flipped into contraction (49.6 vs 51.4 in February). The backlog of orders shrank at a faster pace than in February (44.5 vs. 46.8).
The production index tumbled back into contraction, falling to 48.3 from 50.7. This is a notable development as it comes in a month where backlogs of orders shrank. Employment contracted at a faster pace than in February, falling to 44.7.
Price gains accelerated sharply again in March, as the index jumped to 69.4 (62.4 in February). The three-month change in the index (from 52.5 in Dec to 69.4 in March), is the steepest acceleration in price growth since March 2022. The prices index is at its highest level since June 2022.
Key Implications
Respondents are indicating that firms are stockpiling inventory ahead of potentially even greater tariffs. The worrisome factor is that this is coming at a time that demand is slowing down and could slip further as headwinds to the economy build. The support to demand from the inventory buildup could prove to be temporary. The jump in the prices paid index suggests cost pressures are picking up, leaving firms to decide how to manage the impact to their margins.
A look back at March gives some indication of how industry is adjusting to the new tariff regime, but what comes next is likely more important. Reciprocal tariffs are to be announced tomorrow and are expected to cover major U.S. trading partners. As we outlined in our quarterly forecast, we’re in an assumptions-based forecasting world, where the scale of trade disruptions is a major variable in charting the course of the economy. So, the scope and timing of the tariffs coming tomorrow, and how countries respond, are going to be driving factors for the outlook. Stay tuned for updates.
