U.S. Manufacturing Activity Continues to Slow Down Due to Tariff Threats

Source: The Purchasing Managers’ Index fell to 48.5, slightly below April’s 48.7 reading. A figure below 50 signals contraction in the manufacturing sector, which has now shrunk during 28 of the last 31 months.

The U.S. manufacturing downturn is hitting across multiple fronts. Imports fell to their lowest level since 2009, registering at 39.9. Factories are dealing with longer delivery times, rising input prices, and a lack of consistent demand. The employment index edged up slightly to 46.8 but remains in contraction territory. New orders, production levels, and export activity also weakened.

Tariffs imposed under President Donald Trump’s trade policy are at the center of the strain. Although some levies were recently scaled back, many remain in place. Manufacturers say uncertainty and the inconsistent application of tariffs have disrupted their ability to plan. Several firms described the policy environment as more damaging than pandemic-era lockdowns.

Investor Uncertainty Grows with Inconsistent Trade Policy

Susan Spence, chair of the ISM Manufacturing Business Survey Committee, said 86% of industry comments cited tariffs as the primary source of concern. One respondent described the current policy environment as “whiplash,” noting how the back-and-forth on rates and exemptions had forced companies to spend more time on contingency planning than long-term strategy.

S&P Global’s separate manufacturing reading came in slightly higher at 52. But their chief economist warned that the data masks growing instability. Companies are stockpiling out of fear, not confidence. Inventory spikes may boost short-term production, but they do not reflect sustained demand. That behavior suggests manufacturers expect future disruptions and are bracing for cost increases.

Several ISM respondents noted a rise in supplier distress. Large firms passed tariff costs on to customers. Smaller suppliers, unable to absorb the charges or raise prices, are struggling to stay solvent. In the chemical, paper, and electronics sectors, delayed shipments and canceled orders are becoming common.

Tariff Pressures Drag on Output, Jobs, and Investment

Input prices remain high, with the ISM’s prices-paid index staying above 69 for a second consecutive month. That pressure is eating into margins. Manufacturers of fabricated metal products and machinery say Chinese export restrictions are adding new complications. At the same time, domestic construction has slowed. Factory orders for materials related to single-family housing have dropped for two straight months.

The report also showed a sharp decline in exports and customer inventories. Factories are running lean. Restocking will come at a higher cost due to import taxes and supply delays. For investors, this may increase the risk of margin compression across industrials and materials sectors.

In addition, labor reductions continue to hound manufacturers. The employment index’s slight improvement still reflects a declining workforce. Companies are cutting headcount in response to lower demand projections and prolonged policy uncertainty. One survey participant described the hiring freeze as a defensive move until they see “even one quarter of consistent conditions.”

Will Tariffs Save the Day?

Meanwhile, President Trump doubled tariffs on imported steel and aluminum last week, raising rates to 50%. Though the administration views tariffs as a way to revive domestic production, many economists argue that the short-term effects continue to outweigh the long-term goals. A recent U.S. trade court ruling temporarily blocked some new tariffs, but an appeals court reversed that decision days later.

Policy volatility has made future forecasting difficult. Manufacturing executives remain cautious. Many say they are waiting for clearer direction on trade and tax policy before making capital investments.

Are tariffs still a viable strategy to support U.S. manufacturing, or are they creating more damage than growth? Tell us what you think.

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