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Manufacturing shrank again this month, after a brief reprieve in in January and February, according to the flash manufacturing Purchasing Managers Index (PMI) for March. The entire economy is probably slowing, Citi (C+0.61%) analysts wrote.
The overall reading fell to 49.8 — anything below 50 marks a contraction — with the employment index also showing shrinkage and the new orders measure slowing. Input costs picked up much more than output prices.
“The March PMI report confirms that some of the strength in manufacturing during early 2025 was due to some pulling forward of demand ahead of tariffs,” economists led by Gisela Young wrote in a note to clients. “With some tariffs already in place, manufacturing seems to have returned to contraction.”
The strong US. dollar and still-restrictive interest rates aren’t helping manufacturers, according to Citi. Possible cuts to interest rates and taxes later this year may help, but longer-term duties would continue to weigh on output.
And while the services index picked up by more than expected, that may reflect a rebound in March after bad weather affected spending in January and February, the economists wrote. “The future activity index for services fell close to the lows of the last few years as businesses express worry about the impact of spending cuts and tariffs,” they said.
One bright spot: The weak economy means that increases to inflation from tariffs are in fact likely to be transitory, as Federal Reserve Chair Jerome Powell said at his press conference last week, because companies facing week demand aren’t increasing prices to keep pace with costs, the economists said.
“With consumer spending growth slowing and the labor market likely to weaken this year, tariffs will imply a one-time increase in the level of certain goods prices, and not feed more broadly into inflation in other components like services,” Young and her colleagues wrote.