MNI INTERVIEW: US Factories Set For Contraction On Tariffs-ISM

U.S. manufacturing is on track for at least a quarter of contraction as the Trump administration's push for tariffs keeps firms shedding jobs through attrition and hiring freezes, Institute for Supply Management chair Timothy Fiore told MNI Tuesday. 

"We started off pretty good in November, December, even January. We were looking good, not a dramatic growth, but we were going to be growing nonetheless. We were finally in our seventh expansion cycle in 20 years. I can't say that anymore," Fiore said in an interview. "We're not there and I don't think we're going to be there for months, maybe not six months, probably at least three."

At the same time, companies are already experiencing cost increases that will most likely remain transitory but have some potential to linger, said Fiore, whose view of the manufacturing sector has darkened due to tariffs and the surrounding policy uncertainty. 

The ISM manufacturing index decreased 1.3pp to 49.0 in March, below expectations and the worst reading since November. Readings below 50 indicate contraction.

"The report by itself is not damning, but if you look at the fundamentals it's really alarming," Fiore said. "It's not growth and the fact that we're still releasing people is alarming." 

PRICE GROWTH 

Input prices surged at the fastest pace since mid-2022, surging 7.0ppts to 69.4. Fiore called the tariff effects on price increases "transitory," but stressed there will be second round effects that will last for some time. 

"This is not inflation. This is price growth," he said. "This is all transitory. This is just price growth because of extreme demand and restricted supply."

But "if you're going to put 25% tariffs on everything that's imported, it's going to raise the prices in the United States of the product that is not imported. Because nobody is going to sit there with a 25% cost advantage. They're gonna increase their prices to maximize profits," Fiore said. "In the end, we're sitting with 25% cost growth in our cost of living and how are we going to fund that? Everybody's going to be slamming for 8% pay raises."

The new orders index fell to 45.2 from 48.6, and the employment index fell to 44.7 from 47.6. 

"Employment levels are going to go down. This is killing demand, especially investment. If that's the case, then you're going to see the unemployment rate go up." (See: MNI INTERVIEW: Fed To Focus On Growth Drag From Tariffs - Sahm)

"Employment at less than 45? I would never have thought this back in November, December that we'd see companies continuing to de-staff. They're doing it through attrition and freezes. They're not doing it primarily by layoffs," Fiore said. "The confidence factor among businesses that they're going to be able to fully utilize these people in the next three to six months is diminishing every day."

TARIFF DRAG

Fiore said he is expecting greater clarity this week on the Trump administration's tariff policies and added that he expects tariffs will largely remain in place to a significant degree once put on.

"The top line takeaway is, we're going to have more clarity in the next week or so on what we're going to be facing at least in the first half of this year," Fiore said. "I'm not saying we're going to have all the clarity that we need, but we're going to have more clarity. I'm just astounded that here we are the day before a major policy decision that has huge implications on the US economy and we don't know what the details are."

The administration's tariff policies "really appear to be tied into reconciliation," Fiore said, referring to fiscal and revenue discussions on Capitol Hill. "I can't imagine that you put in 25% tariffs, you reconcile a budget bill, and then you remove the tariffs next day."