U.S. manufacturing activity showed modest improvement in March even as input inflation and supplier delays intensified, according to the Institute for Supply Management (ISM). The ISM's headline manufacturing purchasing managers index (PMI) moved up to 52.7 last month from 52.4 in February, marking the highest reading since August 2022 and the third straight month the index has been above the 50 threshold that indicates expansion.
Economists polled by Reuters had expected the PMI to be essentially unchanged at 52.5. A portion of the March uptick reflected a deterioration in supplier delivery performance, which in many cycles is associated with robust demand. In this episode, however, the slower deliveries likely point to disrupted supply lines rather than purely stronger end-market activity.
The ISM's supplier deliveries index rose to 58.9 in March from 55.1 in February. By ISM convention, a reading above 50 signals longer lead times and slower deliveries.
Industry respondents cited disruptions tied to the U.S.-Israeli war with Iran, which has resulted in restrictions on shipping through the Strait of Hormuz. That disruption has coincided with a more than 50% surge in global crude oil prices since the conflict began at the end of February. Supply interruptions have also affected shipments of fertilizers and aluminum, according to the survey.
With logistics challenged, manufacturers reported paying materially more for inputs. The ISM prices paid measure climbed to 78.3 in March from 70.5 in February, the highest level recorded since June 2022. The increase tracked a rise in producer goods prices noted elsewhere in the survey.
Economists expect the conflict will add to inflation pressures this year and say that could limit the Federal Reserve's ability to cut interest rates. The U.S. central bank left its policy rate in the 3.50%-3.75% range last month. In projections released with the decision, Federal Reserve policymakers anticipated higher inflation and signaled only a single reduction in borrowing costs in 2026.
Despite the headline improvement in the PMI, several domestic policy and demand-side constraints persisted. Tariffs continue to weigh on manufacturing, which comprises 10.1% of the U.S. economy. The sector has not seen the revival envisioned under former President Trump’s tariffs; his earlier import duties were struck down by the U.S. Supreme Court, and he has since announced a global duty.
Forward-looking indicators in the ISM survey showed some softening. The new orders sub-index declined to 53.5 in March from 55.8 in February, and growth in backlog orders slowed. Employment in factories also remained weak: manufacturing payrolls are down by 100,000 jobs since January 2025.
Taken together, the ISM report for March depicts a manufacturing sector that continues to expand but faces mounting cost pressures and logistical constraints. Slower deliveries and sharply higher input prices point to supply-side strains tied to geopolitical developments, even as headline activity edges higher.