US Manufacturing Sector Contracts in March as Demand and Output Weaken

Manufacturing PMI® drops to 49%, reversing modest gains from previous months.

Economic activity in the U.S. manufacturing sector declined in March, ending two consecutive months of slight growth, according to the latest Manufacturing ISM® Report On Business®. The Manufacturing PMI® fell to 49%, down from February’s 50.3%, signaling a return to contraction.

The broader economy continued to expand for the 59th straight month, but manufacturing activity showed signs of weakness. A PMI® above 42.3% typically suggests overall economic growth, even if the manufacturing sector is contracting.

The New Orders Index dropped to 45.2%, its second straight monthly decline. Production also slipped, with the Production Index falling to 48.3%. Rising costs were evident as the Prices Index surged to 69.4%, the highest level in over a year.

Other key indicators also pointed to a slowdown:

The Employment Index fell to 44.7%, suggesting reduced hiring activity.
The Backlog of Orders Index dropped to 44.5%, reflecting weaker demand.
The New Export Orders Index declined to 49.6%.
The Inventories Index rose to 53.4%, signaling stockpiling amid tariff concerns.

Despite some gains in inventories and supplier deliveries, these increases were largely driven by advance purchases ahead of potential tariffs. This contributed to slower deliveries and added pressure on costs.

Timothy Fiore, Chair of the ISM® Manufacturing Business Survey Committee, noted that input prices are climbing, demand is weakening, and production is softening. Businesses are cutting staff through attrition rather than layoffs, and economic uncertainty is prompting caution across the sector.

In March, nearly half of the manufacturing sector’s GDP contracted—up from 24% in February. More notably, 7% of manufacturing GDP posted a PMI® of 45% or lower, compared to 2% in February.

Of the six largest manufacturing industries, three expanded: Petroleum & Coal Products, Computer & Electronic Products, and Transportation Equipment. In total, nine industries grew in March, while seven reported contractions.

Source: Institute for Supply Management

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