Wed, Apr 02, 2025 page9

• Tariff woes depress US manufacturing, erode labor demand

  • Reuters, WASHINGTON
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  US manufacturing contracted last month after growing for two straight months, while a measure of inflation at the factory gate jumped to the highest level in nearly three years amid rising anxiety over tariffs on imported goods.

  Anecdotes from the Institute for Supply Management (ISM) survey yesterday offered a gloomy assessment of business conditions, with tariffs cited as a major factor by manufacturers. US President Donald Trump's wave of tariffs has eroded business and consumer confidence.

  The survey added to data, including tepid consumer spending, that have raised the specter of lackluster economic growth and higher inflation. That could put the Federal Reserve, which paused its easing cycle in January to allow its policymakers to monitor the impact of the tariffs, in an uncomfortable position.

  

  Workers install parts on a hay rake, used by farmers to collect cut hay or straw into rows for easier baling, inside Kuhn North America's factory in Brodhead, Wisconsin, on March 6.

  Photo: Tim Aeppel, Reuters

  "Rising prices while business activity slows imply the economy could be heading into stagflation," LPL Financial Holdings Inc chief economist Jeffrey Roach said. "The Fed finds themselves in a tough spot because shaky corporate and consumer confidence could slow spending, leading to more than just a slowdown."

  The ISM said its manufacturing PMI dropped to 49.0 last month from 50.3 in February. A PMI reading below 50 indicates contraction in the manufacturing sector, which accounts for 10.2 percent of the economy. Economists polled by Reuters had forecast the PMI would slip to 49.5.

  "Demand and production retreated and destaffing continued, as panelists' companies responded to demand confusion," ISM's Manufacturing Business Survey Committee chairman Timothy Fiore said.

  Nine industries including textile mills, primary metals, computer and electronic products as well as transportation equipment and electrical equipment, appliances and components grew last month. Among the seven industries reporting a contraction were machinery, wood, paper and chemical products.

  Some makers of electrical equipment, appliances and components said there was "no evidence of growing demand," adding that "tariff impacts and mitigation strategies are a daily conversation." Machinery manufacturers said "business condition is deteriorating at a fast pace."

  While some makers of fabricated metal products reported better-than-expected orders growth, they noted that customers could be "trying to build inventory at current prices to get ahead of expected tariff and related cost increases."

  Computer and electronic products manufacturers said "customers are pulling in orders due to anxiety about continued tariffs and pricing pressures." Producers of food and beverages reported they were "starting to see slower-than-normal sales in Canada, and concerns of Canadians boycotting US products could become a reality."

  The ISM survey's forward-looking new orders sub-index sagged to 45.2, the lowest reading since May 2023, from 48.6 in February. Production at factories declined. The survey's measure of prices paid by manufacturers for inputs jumped to 69.4, the highest level since June 2022, from 62.4 in February. That data suggest goods inflation could continue rising and contribute to elevated price pressures. A measure of underlying inflation increased by the most in 13 months in February.

  Suppliers' delivery performance remained slow last month. The survey's supplier deliveries index edged down to 53.5 from 54.5 in February. A reading above 50 indicates slower deliveries.

  The flow of imports slowed considerably, suggesting the front-loading of raw materials by businesses seeking to avoid higher prices from tariffs was waning. This front-loading had likely accounted for some of the rise in the manufacturing PMI in the prior two months.

  Factories continued to shed jobs, which could accelerate as import duties start to bite. The survey's measure of manufacturing employment fell to 44.7 from 47.6 in February.

  The ebbing demand for labor was underscored by a separate report from the US Department of Labor, showing job openings dropped 194,000 to 7.568 million by the last day of February. The job openings rate fell to 4.5 percent from 4.7 percent in January. The retail sector had 126,000 fewer vacancies, while unfilled jobs in wholesale trade decreased by 56,000.

  There were also fewer job openings in financial activities, healthcare and social assistance, accommodation and food services as well as manufacturing.

  "The jobs market remains the economy's bulwark, and while it's eroding slowly, it's not showing cracks that foreshadow recession," Navy Federal Credit Union corporate economist Robert Frick said. "How it holds up to assaults from tariffs' effects on consumers and businesses is the crucial question."
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