WASHINGTON – US manufacturing contracted in March after growing for two straight months, while a measure of inflation at the factory gate jumped to the highest level in nearly three years amid rising anxiety over tariffs on imported goods.

Anecdotes from the Institute for Supply Management survey on Tuesday offered a gloomy assessment of business conditions, with tariffs cited as a major factor by manufacturers. President Donald Trump’s wave of tariffs has eroded business and consumer confidence.

The survey added to data, including tepid consumer spending, that have raised the specter of lackluster economic growth and higher inflation. That could put the Federal Reserve, which paused its easing cycle in January to allow its policymakers to monitor the impact of the tariffs, in an uncomfortable position.

“Rising prices while business activity slows imply the economy could be heading into stagflation,” said Jeffrey Roach, chief economist at LPL Financial. “The Fed finds themselves in a tough spot because shaky corporate and consumer confidence could slow spending, leading to more than just a slowdown.”

The ISM said its manufacturing PMI dropped to 49.0 last month from 50.3 in February. A PMI reading below 50 indicates contraction in the manufacturing sector, which accounts for 10.2% of the economy. Economists polled by Reuters had forecast the PMI would slip to 49.5.

Manufacturing started turning around at the beginning of the year after a lengthy recession triggered by the US central bank’s aggressive interest rate hikes in 2022 and 2023 to tame inflation. But the nascent recovery appears to have been snuffed out by Trump’s tariffs.

“Demand and production retreated and destaffing continued, as panelists’ companies responded to demand confusion,” said Timothy Fiore, who chairs the ISM’s Manufacturing Business Survey Committee.

Trump, since returning to the White House in January, has announced and delayed tariffs on Canada and Mexico over what he alleges is their role in allowing the opioid fentanyl into the US, set import taxes on goods from China for the same reason, launched hefty duties on imports of steel and aluminum and slapped a 25% levy on imported cars and light trucks.

Trump promised to announce global reciprocal tariffs on Wednesday, which he has dubbed “Liberation Day.” He sees tariffs as a tool to raise revenue to offset his promised tax cuts and to revive a long-declining US industrial base.

But economists have criticized the import duties as inflationary and detrimental to the economy.

Nine industries including textile mills, primary metals, computer and electronic products as well as transportation equipment and electrical equipment, appliances and components grew last month. Among the seven industries reporting a contraction were machinery, wood, paper and chemical products.

Some makers of electrical equipment, appliances and components said there was “no evidence of growing demand,” adding that “tariff impacts and mitigation strategies are a daily conversation.” Machinery manufacturers said “business condition is deteriorating at a fast pace.”

While some makers of fabricated metal products reported better-than-expected orders growth, they noted that customers could be “trying to build inventory at current prices to get ahead of expected tariff and related cost increases.”

Computer and electronic products manufacturers said “customers are pulling in orders due to anxiety about continued tariffs and pricing pressures.” Producers of food and beverages reported they were “starting to see slower-than-normal sales in Canada, and concerns of Canadians boycotting US products could become a reality.”

Stocks on Wall Street were higher. The dollar was steady against a basket of currencies. US Treasury yields fell.

RECESSION ODDS RISING
Economists at Goldman Sachs now see a 35% probability of a recession over the next 12 months, up from 20% previously, reflecting the sharp deterioration in consumer and business confidence as well as “statements from White House officials indicating greater willingness to tolerate near-term economic weakness in pursuit of their policies.”

Domestic manufacturers rely heavily on imported raw materials and could experience a severe disruption in supply chains, economists warned.

The ISM survey’s forward-looking new orders sub-index sagged to 45.2, the lowest reading since May 2023, from 48.6 in February. Production at factories declined. The survey’s measure of prices paid by manufacturers for inputs jumped to 69.4, the highest level since June 2022, from 62.4 in February.

That data suggest goods inflation could continue rising and contribute to elevated price pressures. A measure of underlying inflation increased by the most in 13 months in February.

Suppliers’ delivery performance remained slow last month. The survey’s supplier deliveries index edged down to 53.5 from 54.5 in February. A reading above 50 indicates slower deliveries.

The flow of imports slowed considerably, suggesting the front-loading of raw materials by businesses seeking to avoid higher prices from tariffs was waning. This front-loading had likely accounted for some of the rise in the manufacturing PMI in the prior two months.

Factories continued to shed jobs, which could accelerate as import duties start to bite. The survey’s measure of manufacturing employment fell to 44.7 from 47.6 in February.

The ebbing demand for labor was underscored by a separate report from the Labor Department showing job openings, a measure of labor demand, dropped 194,000 to 7.568 million by the last day of February. The job openings rate fell to 4.5% from 4.7% in January. The retail sector had 126,000 fewer vacancies while unfilled jobs in wholesale trade decreased by 56,000.

There were also fewer job openings in financial activities, healthcare and social assistance, accommodation and food services as well as manufacturing.

But federal government job openings increased by 6,000 despite a hiring freeze imposed by the Trump administration as part of an unprecedented campaign to slash spending.

Layoffs increased 116,000 to a still-low 1.790 million. They were concentrated in the retail and professional and business services sectors. Federal government layoffs rose by 18,000.

The hires rate was 3.4% for a third straight month. With the economy’s outlook shaky and hiring tepid, workers are staying put. Resignations declined by 61,000 to 3.195 million, keeping the quits rate at 2.0%.

“The jobs market remains the economy’s bulwark, and while it’s eroding slowly, it’s not showing cracks that foreshadow recession,” said Robert Frick, corporate economist with Navy Federal Credit Union. “How it holds up to assaults from tariffs’ effects on consumers and businesses is the crucial question.” — Reuters

WASHINGTON – Elon Musk’s cost-cutting team is finalizing the dismantlement of the US Agency for International Development, ordering the firing of thousands of local workers and American diplomats and civil servants assigned to the agency overseas, two former top USAID officials and a source with knowledge of the situation said on Tuesday.

On Friday, Congress was notified that almost all of USAID’s own employees are being fired by September, all of its overseas offices shut, and some functions absorbed into the State Department.

The latest move by Musk’s Department of Government Efficiency effectively will eliminate what is left of the agency’s workforce.

“This is definitely the final closing out,” said one of the former senior USAID officials.

President Donald Trump and Musk, his hand-picked adviser to oversee government cost-cutting, in February began the process of shuttering USAID and merging its operations into the State Department to ensure they conformed with Trump’s “America First” policies. The State Department did not immediately respond to a request for comment.

The former officials and source familiar with the situation, speaking on condition of anonymity, said that USAID’s human resources office told regional bureaus in a conference call that layoff notices were going to all of the more than 10,000 locally hired foreign nationals, effective in August.

The first former official said the call took place on Monday, adding that the local staff terminations could run afoul of labor laws in the countries where the fired workers are employed.

Notices also will be sent to US diplomats and civil servants assigned to work abroad for what has been the leading US foreign aid provider for more than 60 years, the former officials and the source said.

Trump has claimed without evidence that the agency was rife with fraud and run by “radical left lunatics,” while Musk falsely accused it of being a “criminal” organization.

Thousands of USAID’s own staff were placed on administrative leave – they received layoff notices on Friday – hundreds of contractors fired and more than 5,000 programs terminated, disrupting global humanitarian aid efforts on which millions depend.

According to the non-partisan Congressional Research Service, USAID maintains missions in more than 60 countries, with most of its funds going to humanitarian aid and health programs.

Top recipients included war-torn Ukraine and Democratic Republic of Congo, US ally Jordan, and the Israeli-occupied West Bank and the combat-shattered Gaza Strip.

A summary of the conference call circulated by one regional bureau and reviewed by Reuters confirmed the terminations of all locally hired foreign nationals and American diplomats and civil servants on assignment with USAID abroad.

It said more than 600 US diplomats are on secondment to USAID overseas, but provided no figure for the number of US civil service members. Most are to be terminated in July, when the intent is to close “all programmatic work.”

“Every position eliminated; 100 percent of the agency is rif’d (Reduction in Force) or will be,” the summary said, and advised personnel that no one would be retained and to “focus on things to make sure you’re getting the right benefits.” — Reuters