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US factory activity declined in March, adding to fears that Donald Trump’s aggressive trade policies are weighing on the world’s largest economy.
The Institute for Supply Management’s manufacturing purchasing managers’ index dropped to 49 in March from 50.3 the previous month, entering contraction for the first time in 2025. Economists polled by Reuters had forecast a smaller decline to 49.5.
Factory orders and employment slumped, while price growth accelerated, as companies “responded to demand confusion” and uncertainty triggered by the prospect of higher tariffs on some of the country’s most important trading partners, said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.
Inventories, meanwhile, climbed to their highest level since 2022 in a sign that producers are stockpiling ahead of the expected new trade levies, according to Veronica Clark, an economist at Citi.
The report comes amid mounting concerns that Trump’s multiple U-turns on trade policy are weighing on business confidence.
Trump has declared that Wednesday will be “liberation day”, when he is expected to announce a sweeping escalation of “reciprocal tariffs” intended to punish other nations for what his administration views as unbalanced trade relationships and unfair taxes, subsidies and regulations.
The ISM figures showed that the administration’s aggressive trade policies were “biting at” but “not derailing” the manufacturing industry, said Ryan Sweet, chief US economist at Oxford Economics.
“Uncertainty is suffocating for the economy and it’s unlikely that dark cloud clears anytime soon.” He added, however, that the index was “nowhere near” a level that would signal the economy was in a recession.
US stocks posted their worst quarter in almost three years at the start of 2025 — with the S&P 500 sinking nearly 5 per cent — as the Trump administration’s erratic tariff announcements weighed on investor sentiment. Closely watched surveys showed consumer confidence plunged to a four-year low while CEO confidence fell to its lowest level in more than a decade.
“In the US, there is a clear crisis of confidence,” said Manish Kabra, head of US equity strategy at Société Générale. With all of the uncertainty generated by the White House in recent weeks, “it is remarkable that the S&P 500 is down only 5 per cent” this year, he added.
