US Manufacturers Are Worried

After spending two months above 50, which is normally the dividing line between expansion and contraction in this sector, the ISM Manufacturing index slipped back below that threshold for the first time this year. The monthly decline was also the biggest since February 2024.

Although the drop in the total index was substantial, we shouldn’t overestimate its impact. The ISM Manufacturing index spent the entire period between November 2022 and December 2024 below the 50‑point threshold, but industrial production and the US economy as a whole didn’t seem much affected.

But 2025 could be a different story. It’s clear that the uncertainty caused by the Trump administration’s trade policy has hit a particularly raw nerve for manufacturers. This can mostly be seen in the different ways that the various components of the index have changed. New orders, which are often viewed as a sign of equipment investment intentions, plunged to their lowest since June 2023.

Manufacturers are also deeply concerned over rising costs. In March, the Prices index soared to its highest reading since June 2022, the peak of the post-pandemic inflationary surge. The jump reflects the acceleration of inflation expectations that’s also been observed in consumer confidence indexes.

The comments in the ISM report show the extent of respondents’ concerns. Almost all sectors are concerned about the current or future impact of US tariffs and retaliatory measures by other countries. These negative perceptions obviously stand in sharp contrast to the Trump administration’s goal of reinvigorating the US manufacturing sector through tariffs and deregulation. 

It remains to be seen whether this more negative sentiment will actually cause a contraction of the US economy. That’s what our latest forecast expects, but we’ll need to keep an eye on upcoming economic indicators to get a clearer picture. Upcoming White House announcements on trade policy will also be of interest.

The decrease in the ISM Manufacturing index and its main components, along with the tense comments by survey respondents, clearly show the fragility of the US economy. If they affect real economic activity, these concerns could result in a drop in output, or even a technical recession. This would make it even harder for the Federal Reserve and the Trump administration to meet their goals.