Manufacturing expansion, we hardly knew you. The uncertainty of global trade, along with the reemergence of inflation concerns, has thrown the ISM’s Purchasing Managers Index back into contraction territory two months in a row now, after two months of expansion earlier this year. That means since October 2022, we’ve only seen two months with a manufacturing PMI of 50 or above.
Note: While ISM’s index shows manufacturing continuing to struggle, it also shows the overall economy in expansion territory ever since May 2020. And although the buzz continues around the uncertainty based on the administration’s trade policies, a number of reputable institutions are lowering their expectations for a recession this year. JPMorgan and Morgan Stanley both say that probability has now dropped below 50%. Despite trade tensions currently easing, concerns about the fiscal health of the U.S. (culminating in Moody’s sovereign credit rating downgrade) are adding new pressures on the economy.
Speaking of the reemergence of inflation concerns: We saw consumer prices increase 0.2% in April and 2.3% over the past 12 months. That said, Goldman Sachs economists have increased their forecasts for inflation in 2025 and 2026 based on an expected increase in personal consumption expenditures.
A key concern for manufacturers regarding a recurrence of inflation is how to manage cost increases. During the pandemic’s supply chain crisis there was some flexibility for producers to pass along cost increases, yet there may be limits to that this time around. Wholesale prices decreased 0.5% in April and the cost of imports is expected to increase over the coming months. Manufacturers will be walking a tightrope between absorbing and passing along the higher costs.
(Updated 5/21/25)
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