The brief revival in U.S. factory activity vanished in March as input prices shot up at the fastest pace since mid-2022, raising red flags about eroding profit margins, cost pass-through risks and strained supply chains as the U.S. economy braces for the impact of “reciprocal trade tariffs.”
On Tuesday, the Institute for Supply Management revealed its closely watched Manufacturing Purchasing Managers’ Index dropped back into contraction territory after two months of marginal expansions, slipping from 50.3% in February to 49% in March.
Demand Drops, Costs Spike
The ISM’s March data showed a troubling divergence, further bolstering the risk of entering a stagflation environment: while demand indicators weakened, input costs surged.
The Prices Index rose sharply to 69.4% from 62.4% in February, its highest level since June 2022. The acceleration was primarily attributed to increased tariffs, which companies are rushing to circumvent.
“Prices growth accelerated due to tariffs, causing new order placement backlogs, supplier delivery slowdowns and manufacturing inventory growth,” said Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee.
Meanwhile, new orders—a proxy for demand—sank to 45.2% from 48.6%, the lowest reading since August 2024.
The employment index dropped to 44.7%, the weakest since September 2024, and production fell to 48.3% from 50.7%.
Why Are Input Prices Rising This Fast?
The …