US manufacturing activity shrank last month by the most in five months as lean order books prompted the steepest output contraction since 2020.
The Institute for Supply Management’s (ISM) factory gauge eased 0.3 point to 48.7, data out yesterday showed. The group’s production index stumbled more than 4 points to 44. Readings below 50 indicate contraction.
The figures illustrate an industrial sector struggling for traction as US tariffs and general uncertainty surrounding trade policy interrupt expansion plans.
Photo: Tim Aeppel, Reuters
Orders shrank for a third month and backlogs retreated at a faster pace, consistent with subdued demand. Prices paid for inputs, however, accelerated slightly.
Eleven industries expanded, led by apparel, petroleum, and plastics and rubber, while six contracted.
The report also showed the strategy of rushing in imports ahead of tariffs is drawing to a close. The ISM imports index declined at the fastest pace since the end of 2023.
In addition to the headwinds posed by sluggish demand, producers are also contending with higher costs. A measure of prices paid for materials increased to the highest level since June 2022 despite cheaper energy costs.
“Demand and production retreated and destaffing continued, as panelists’ companies responded to an unknown economic environment,” ISM Manufacturing Business Survey Committee chair Timothy Fiore said in a statement.
“Prices growth accelerated slightly due to tariffs, causing new order placement backlogs, supplier delivery slowdowns and manufacturing inventory growth.”
Weak orders, slower production and declining backlogs help explain a third straight month of decreasing manufacturing employment. Government data due to be released today are expected to show factory payrolls fell last month for the first time in three months.
Meanwhile, producers are keeping inventories lean. The ISM’s gauge fell to 50.8.
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