US Manufacturing Experiences Largest Expansion Since 2022
The US manufacturing industry expanded in March at its fastest pace since 2022, while input prices continued to soar amid the war with Iran.
The Institute for Supply Management (ISM) index measuring manufacturing raw material prices rose 7.8 points to 78.3, remaining at its highest level since mid-2022. Over the past two months, the index has risen 19.3 points, its largest increase in nearly a decade.
The closure of the Strait of Hormuz due to the war with Iran disrupted the transportation of oil and other products critical to the manufacturing sector, leading to a surge in oil prices.
However, the ISM's measure of factory activity edged up to 52.7, driven by increased production and increased supplier deliveries. The price increases and longer delivery times likely reflect the impact of trade disruptions related to the conflict.
"A large majority of comments in March were negative," said Susan Spence, chair of the ISM Manufacturing Business Survey Committee. “About 20% of negative comments mentioned tariffs, and about 40% related to the war in the Middle East.”
Thirteen manufacturing industries reported growth last month, including base metals and transportation equipment, while three others reported contraction.
The supplier shipments index rose to its highest level since May 2022. In addition to energy, the Strait of Hormuz is a key conduit for products like aluminum, fertilizer, and even helium, which is used in semiconductor production.
These rising input costs could put pressure on US manufacturers to raise prices, indicating higher overall inflation throughout the year. Economists in a Bloomberg survey recently raised their inflation projections.
The ISM report also showed that new orders and backlogs grew at a solid but slower pace in March. Meanwhile, the group's factory employment index was unchanged. While remaining near its highest level in more than a year, this measure indicates that the number of factory workers continued to shrink in March. The March jobs report from the US Bureau of Labor Statistics will be released on Friday.
Cause:
Trade disruptions due to conflicts in the Middle East, particularly the closure of the Strait of Hormuz, have increased manufacturing input costs.
Geopolitical tensions have led to a spike in energy prices, particularly oil, which has impacted manufacturing operating costs.
Consequence:
Increased input costs could exacerbate inflation in the US.
Manufacturing is under pressure from rising costs and labor market uncertainty.
Source: newsmaker.id
