U.S. manufacturing activity picked up in March, though a measure of prices paid by factories for inputs jumped to the highest level in nearly four years and suppliers took longer to deliver material amid the war in the Middle East.
The Institute for Supply Management said on Wednesday its manufacturing PMI edged up to 52.7 last month, the highest reading since August 2022, from 52.4 in February. It was the third consecutive month that the PMI was above the 50 level, which indicates expansion. Economists polled by Reuters had forecast the PMI little changed at 52.5.
Part of the increase in the index was likely because of lengthening suppliers' delivery times, normally associated with a strong economy and increased customer demand. In this instance, however, slower supplier deliveries likely indicate snarled supply chains.
The U.S.-Israeli war with Iran has led to shipping restrictions through the Strait of Hormuz, with global crude prices surging more than 50 percent since the conflict started at the end of February. Shipments of fertilizers and aluminum have also been impacted.
The ISM survey's supplier deliveries index increased to 58.9 from 55.1 in February. A reading above 50 indicates slower deliveries.
With supply chains disrupted, manufacturers paid more for inputs last month. The survey's prices paid measure accelerated to 78.3, the highest level since June 2022, from 70.5 in February. The rise mirrored a surge in producer goods prices.
Economists expect the war will boost inflation this year and some believe that would prevent the Federal Reserve from cutting interest rates this year. The U.S. central bank left its benchmark overnight interest rate in the 3.50 percent-3.75 percent range last month. In updated projections released alongside the decision, policymakers expected higher inflation and only a single reduction in borrowing costs in 2026.
Despite last month's rise in the PMI, tariffs remain a constraint on manufacturing, which accounts for 10.1 percent of the economy. The sector has yet to experience the rebirth that Trump envisioned with his import duties, which were struck down by the U.S. Supreme Court. Trump has since announced a global duty.
The ISM survey's forward-looking new orders sub-index dropped to 53.5 from 55.8 in February. Growth in backlog orders also slowed. Factory employment remained subdued. Manufacturing employment has declined by 100,000 jobs since January 2025.
