May 1, 2025
The Institute for Supply Management’s index of conditions in the manufacturing sector declined 0.3 point in April to 48.7 after having fallen 1.3 points in March. This index was above the break-even level of 50.0 in February but if fell below that threshold in March in April as manufacturers are trying to figure out how to adjust to the tariffs. A level of 48.7 is associated with a GDP increase of 1.8%. While the low readings in March and April are discouraging, the reality is that this index was between 47.0-49.0 for the past two years so one should not get too concerned quite yet.
The ISM organization does a similar survey for the services sector. The ISM index of conditions in the service sector for April will be released on Monday, May 5.
The Institute for Supply Management Chair for the Survey Committee Timothy Fiore said, ““In April, U.S. manufacturing activity slipped marginally further into contraction after expanding only marginally in February. Demand and output weakened while input strengthened further, conditions that are not considered positive for economic growth. Indications that demand weakened include the (1) New Orders Index continuing in contraction territory, (2) New Export Orders Index dropping sharply further into contraction, (3) Backlog of Orders Index contracting at a faster rate and (4) Customers’ Inventories Index remaining in ‘too low’ territory. Output (measured by the Production and Employment indexes) also weakened. Factory output (production) contracted further in April, indicating that panelists’ companies are continuing to revise production plans downward in the face of economic headwinds. The Employment Index ticked up but remained in contraction, as panelists’ companies continued to release workers. Companies generally opted for layoffs because they are quicker to implement than attrition. Inputs are defined as supplier deliveries, inventories, prices and imports. Except for Imports, the other indexes indicated expansion. Inventory growth is not a positive sign when demand is moving in the opposite direction; the recent expansion is considered a temporary move to avoid tariffs, and levels will decline when such trade issues are resolved. Supplier delivery performance reflects this pull-forward activity and delays in clearing goods through ports of entry.” Fiore added that, “Demand and production retreated and destaffing continued, as panelists’ companies responded to an unknown economic environment.”
Comments from respondents include the following:
- “Uncertainty over tariffs is providing a big challenge from both Tier-1 suppliers we will have to pay tariffs on directly and Tier-2 suppliers that will try to pass tariffs through to us in the form of price increases and tariff surcharges.” [Chemical Products]
- “Tariffs impacting operations — specifically, delayed border crossings and duties calculations that are complex and not completely understood. As a result, we are potentially overpaying duties. Unsure of potential drawbacks. Implementation of tariffs and their application is sudden and abrupt. The business is taking countermeasures.” [Transportation Equipment]
- “Business climate is apprehensive, and with tariff costs implemented, all inbound Chinese shipments are on hold. It is not feasible for our business or customers to sustain the pricing required to provide an acceptable margin.” [Computer & Electronic Products]
- “The most important topic is tariffs. Risks include margin erosion due to rising operational costs and freight delays disrupting delivery timelines. Supplier relationships are strained by pain-share negotiations, and competitors are gaining share by importing from lower-tariff regions.” [Food, Beverage & Tobacco Products]
- “Tariff whiplash is causing us major issues with customers. The two issues we are seeing: (1) customers are holding back orders to understand what is happening with tariffs on their products or (2) they are forcing us to accept the tariffs, which causes us to ‘no quote’ the job as we cannot take on that type of risk for an order.” [Machinery]
- “There is a lot of concern about the inflationary impacts from tariffs in our industry. Domestic producers are charging more for everything because they can.” [Fabricated Metal Products]
- “Tariff trade wars are incredibly volatile, quickly changing, and disrupting a ton of our current work. We are 90 percent sourced out of China, and the cost models keep changing every week. We are flying to visit suppliers in a few weeks to negotiate current terms and pricing, as well as develop more long-term, strategic plans to reduce risk in the region.” [Apparel, Leather & Allied Products]
- “Demand is slightly lower than plan, but it has been steady amid tariff concerns. Significant time has been spent quantifying the impact of changing tariff rates. Our costs will increase, and we are discussing how to share that impact across suppliers and customers.” [Electrical Equipment, Appliances & Components]
- “The recently imposed 145-percent tariff rate on Chinese imports is significantly affecting our 2025 profitability. Due to the complexity of our parts and the lack of alternate sources, we are unable to find any alternate suppliers — especially at a reasonable cost — to our current Chinese sources. Incoming orders have slowed due to market volatility and uncertainty.” [Miscellaneous Manufacturing]
- “Strategic procurement and the supply chain are paralyzed in a world that changes daily due to tariffs.” [Nonmetallic Mineral Products]
It is striking to us that all 10 comments included some discussion of tariffs and the impact these manufacturers were seeing in their industry. Everybody is nervous and trying to figure out how to adapt their business to this new environment.
The orders component rose 2 points in April to 47.2 after having declined 3.4 points in March. This index hasn’t indicated consistent growth since a 24-month streak of expansion ended in May 2022. “Of the six largest manufacturing sectors, four (Petroleum & Coal Products; Machinery; Computer & Electronic Products; and Chemical Products) reported increased new orders. Two (Transportation Equipment; and Food, Beverage & Tobacco Products) reported declines. The percentages reporting ‘higher’ and ‘lower’ new orders both increased in April, an unusual sign and indication of a rare transition. Panelists noted a weakening level of demand performance, with a 1-to-1 ratio of positive comments versus those expressing concern about near-term demand. Overall, new orders continue to slow, as discussions about who will pay for potential tariff costs are the prime topic of negotiations between buyers and sellers. New orders are also struggling due to a lack of new orders from overseas customers,” says Fiore
The production component fell 4.3 points in April to 44.0 after having declined 2.4 points in March . Prior to January’s reading, the index was in contraction territory for eight consecutive months, with the last reading above 50 percent in April 2024, “Production levels in April showed a significant decrease for the second time in 2025, as order books remain weak and new orders continue to decline. Petroleum & Coal Products; Food, Beverage & Tobacco Products; and Transportation Equipment led the decline in output, causing head-count reductions at factories. Lack of capital investment due to business-climate uncertainty is also having a significant impact on production plans and output.” says Fiore.
The delivery performance of suppliers to manufacturing organizations rose 1.7 points in April to 55.2 after having declined 1.0 point in March. This measure indicates the proportion of companies that are reporting slower delivery times. Hence, a reaching above 50.0 indicates that delivery times actually slowed slightly in February, March, and April. Fiori noted that, “Deliveries continued to be marginally strained as (1) suppliers struggled to meet accelerated delivery requests from panelists’ companies, (2) materials are delayed in processing at ports of entry and (3) suppliers and panelists’ companies negotiate who pays for applied tariffs.”
The employment index rose 1.8 points in April to 46.5 after having declined 2.9 points in March. “The index posted its third consecutive month of contraction after expanding in January, with seven straight months of contraction before that. Since May 2022, the Employment Index has contracted in 29 of 36 months. Of the six big manufacturing sectors, three (Petroleum & Coal Products; Transportation Equipment; and Computer & Electronic Products) reported expanded employment in April. Respondents’ companies continue to reduce head counts through layoffs, attrition and hiring freezes; an approximate 1-to-1 ratio of hiring versus staff-reduction comments reflects an acceleration of head-count reductions due to the uncertain near- to mid-term demand. Layoffs were the primary tools used, an indication that head-count reduction is becoming more urgent,” says Fiore. An employment index above 50.3 is generally consistent with an increase in the BLS data on manufacturing employment.
The backlog of orders fell 0.8 point in April to 3.7 after having declined 2.3 points in March. “Given the state of weak new orders and now reduced production output in key industries, the hoped-for return of expanding backlogs continues to be delayed until trade issues and other geopolitical tensions recede,” says Fiore.
Customer inventory levels declined 0.6 point in May to 36.2 after having risen 1.5 points in March. “Customers’ inventory levels in April continued to contract and moved slightly further from ‘about right’ territory. Panelists are reporting that the amounts of their companies’ products in their customers’ inventories suggest a demand level that remains positive for future production,” says Fiore.
With an increase in the orders index and little change in customer inventories the ratio of orders to inventories rose 0.1 in April to 1.1 after having declined 0.1 in March. The 1.1 level for this index suggests that production should be relatively steady in the months ahead.
The prices paid component rose 0.4 point to 69.8 after having climbed 7.0 points in March. Fiore noted that, “The Prices Index indicated increasing prices in April for the seventh consecutive month, driven by increases in steel and aluminum prices impacting the entire value chain, as well as the general 10-percent tariff applied to many imported goods. Forty-nine percent of companies reported higher prices in April, compared to 46 percent in March. This share has consistently increased over the past six months, from a low of 12.2 percent in November,” says Fiore.
After declining 0.3 point in the fourth quarter we expect GDP to expand at a 2.5% pace in the second quarter and climb 1.9% in 2025. The economy is showing numerous signs of uncertainty and rising prices but, thus far, few signs of slowing down.
Stephen Slifer
NumberNomics
Charleston, S.C.
Follow Me