The S&P Global US Manufacturing PMI dropped to 49.8 in March 2025 from 52.7 in February, missing market expectations of 51.8, according to a preliminary estimate.
US manufacturing sector contracts in March
The decline signals a contraction in the manufacturing sector, as output fell after February’s sharpest increase in nearly three years. Factories reported a slowdown in activity, with fewer cases of production being temporarily boosted by the front-running of tariffs. Additionally, new order growth nearly stalled, reflecting weaker demand and growing uncertainty over trade policies.
Purchasing activity also declined, with businesses scaling back input buying amid cost pressures and subdued demand. However, export sales showed signs of improvement, posting their smallest decline in nine months. Increased orders from Canada, Germany, and other EU countries helped offset some of the weakness, as firms rushed to fulfill contracts before the full implementation of new tariffs.
Factory employment falls
Meanwhile, employment in the sector fell for the first time since last October, as manufacturers remained cautious about expanding payrolls in the face of rising costs and an uncertain economic outlook. On the inflation front, input costs surged to a 31-month high, driven largely by tariffs on imported materials. This, in turn, led to the sharpest increase in selling prices in over two years, as businesses attempted to pass on rising costs to customers.
Business sentiment remains strong
Despite the slowdown, business sentiment remained among the highest seen in the past three years, as some manufacturers remained optimistic about longer-term demand and potential policy adjustments that could provide relief later in the year. Investors and policymakers will closely watch upcoming economic data and trade developments to assess whether the manufacturing sector can regain momentum in the months ahead.
