Us manufacturing falls back into contraction as tariffs push up material prices

The US manufacturing sector slipped back into contraction territory this month as tariff-related material prices rose, while the outlook for the services sector worsened.

The Standard & Poor's Global manufacturing purchasing Managers' index for March came in at 49.8. A number below 50 indicates contraction. While output from service providers improved, partly due to stronger demand, confidence in the outlook for the year ahead fell to its second-lowest level since 2022.

The preliminary March composite index rose 3 points to 52.4, helped by a rise in new business and better weather that helped lift the services activity index to a three-month high. At the same time, rising tariffs and federal spending cuts are making service providers more anxious.

"A major concern about tariffs is their impact on inflation, and the March survey suggests that costs will rise sharply further as suppliers pass on tariff-related increases to U.S. companies," Chris Williamson, chief corporate economist at S&P Global Markets Finance, said in a statement quoted by Bloomberg.

"Business costs are rising at the fastest pace in nearly two years, and factories are increasingly passing on cost increases to their customers," Williamson said.

The report showed that prices received by manufacturers rose at the fastest pace since February 2023. The composite index of prices paid rose the most in nearly two years. Companies also attributed cost pressures to higher labor costs.

A measure of manufacturing output and employment fell for the first time since October. Order growth nearly stalled as producers reported fewer preemptive imports ahead of U.S. tariffs.

The survey data was collected from March 12 to 21.