MNI INTERVIEW: US Manufacturing Under Pressure From Shocks-ISM

The supply shock emanating from the war in Iran could compound concerns around tariffs and undermine a nascent recovery in U.S. manufacturing as prices surge and uncertainty spikes, Institute for Supply Management manufacturing chair Susan Spence told MNI. 

"The new uncertainty of the Iran war, plus the very large increases in prices over the last few months, we're worried that that does not bode well for the continued expansion of PMI," she said.

Factory activity expanded in the U.S. in March at the fastest pace since mid-2022, but the latest monthly reading flashed a strong warning that inflation is resurgent amid the war in Iran. 

The ISM’s purchasing managers index was 52.7 last month, versus 52.4 in February and above market expectations. Readings above 50 indicate a sectoral expansion. But the survey’s prices index hit 78.3, the highest reading since 2022. It was a jump from 70.5 in February. 

There were 24 commodities reported up in price versus 0 reported down in price, and 6 reported in short supply. Respondents to the survey said the war is adding to uncertainty and raising costs.

 "As we saw throughout last year, with the chaotic tariff environment, we believe the new level of uncertainty, coupled with ongoing questions on new replacement tariffs, probably mean that businesses are still hesitant to hire and expand manufacturing," the ISM manufacturing chief said. 

New orders for March dd dip 2.3 percentage points to 53.5, while the order backlog figure came in at 54.4 versus 56.6 last time. The employment index edged down 0.1 percentage points to 48.7. This is below the 50 break-even level, suggesting jobs continue to be shed by the sector. 

SENTIMENT

U.S. manufacturers started the year on an upswing, but Spence expressed doubts about the PMI going forward. 

"Even if we're another month into the Iran thing, I don't really think it's going to have these long lasting effects, but it is on top of other things" and other shocks, she said noting tariffs. "Perhaps the impact of it is more pronounced because it's on top of other stuff."

"It's just so much uncertainty. You don't know what the administration is going to do, and therefore it's just not good for business."

Spence noted the headline PMI could decline with demand slowing, but at the same time the production index has continued to hold up, suggesting further growth, she said laying out potential scenarios. 

"In the survey, over the last two months there were two positive comments about demand for every negative comment. Now it's dropped to one to one. So that worries me," she said. "Production looks sunnier than it did last month, two positive comments for every one."

"We've had five months in a row of expansion in production. That was a little surprising. As long as new orders stay in that growing range, it's going to flow to production, and maybe production stays positive, but I don't like a 2.3 percentage point drop there."

"I hope the expansion can continue, but it all depends on what's happening at the front of the pipe," Spence said, referring to new orders.