Manufacturers brace for pain amid Trump tariffs
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Manufacturers expect dismal business conditions that could plunge the sector back into a recessionary-like state.
Why it matters: President Trump's trade war is intended to revitalize domestic factories by discouraging the consumption of foreign-made goods.
- But for the moment, surveys show manufacturers expect the opposite: less expansion, plummeting sales, job cuts and higher prices. It's a signal that they see high hurdles and economic pain as the White House aims to delink the U.S. manufacturing sector from the rest of the world.
Driving the news: Regional Federal Reserve banks regularly poll manufacturers about their economic outlooks. Those surveys, including some releaesd this week, have turned uniformly gloomy.
- New York factory owners turned "pessimistic about the outlook, with the future general business conditions index falling to its second lowest reading in the more than twenty-year history of the survey," according to the New York Fed's Empire State manufacturing survey.
- Capital spending plans to expand business were flat this month. Respondents anticipate higher input costs and selling prices. They expect supply shortages to worsen in the next six months.
The Philadelphia Fed's survey of manufacturers in Delaware, and parts of Pennsylvania and New Jersey, showed indicators for general activity, new orders and shipments turned negative.
- More firms expect future business activity to pick up than those that anticipate it will slow. Employment is steady now, though an index measuring future hiring intentions fell to its lowest level since 2016.
- Expectations for steepest prices paid and received jumped to the highest since June 2021, the early months of the pandemic inflation shock.
Yes, but: The negativity in the regional surveys, which are very volatile month to month, is not evident in big-picture data — a similar phenomenon to the plummeting economic pessimism among consumers.
- For instance, manufacturing output jumped by 0.3% after rising nearly a full percentage point in February, Federal Reserve data on Wednesday showed. For the second straight month, output of autos helped boost overall production.
- Cars were in high demand last month — dealership retail sales jumped last month, new data this week showed — which economists attributed to a surge in purchases ahead of tariffs taking effect.
Flashback: In recent years, the manufacturing sector was hit by a "rolling recession" that left the rest of the economy relatively unscathed. It felt the pain of the Fed's historic interest rate hiking campaign.
- The sluggishness seemed over, with more optimism as the Fed kicked off interest rate cuts and Trump readied to return to the White House.
- The Institute for Supply Management's index of manufacturing activity, for example, was in contractionary territory for 26 straight months through December, then positive in January and February before flipping negative again in March.
