Lucia Mutikani
5 min read
By Lucia Mutikani
WASHINGTON (Reuters) - U.S. manufacturing contracted for a third straight month in May and suppliers took the longest time in nearly three years to deliver inputs amid tariffs, potentially signaling looming shortages of some goods.
President Donald Trump's aggressive trade policy again dominated commentary from manufacturers in the Institute for Supply Management (ISM) survey published on Monday, and suppliers were passing on the import duties to customers. That challenges the Trump administration's narrative that China and other trade partners paid the tariffs.
The on-again and of-again tariffs were described by some transportation equipment manufacturers as having "wreaked havoc on suppliers' ability to react and remain profitable," while makers of computer and electronic products viewed the duties and government spending cuts as "raising hell with businesses."
"The outlook for the manufacturing sector looks downbeat, particularly with the initial surge in demand from front-loading now behind us," said Matthew Martin, senior economist at Oxford Economics. "Businesses are contending with higher input costs, supply disruptions, and domestic and foreign customers wary of committing to new orders."
The ISM said its manufacturing PMI edged down to a six-month low of 48.5 last month from 48.7 in April. A PMI reading below 50 indicates contraction in the manufacturing sector, which accounts for 10.2% of the economy.
The PMI, however, remains above the 42.3 level that the ISM says over time indicates an expansion of the overall economy.
Economists polled by Reuters had forecast the PMI rising to 49.3. The survey suggested manufacturing, which is heavily reliant on imported raw materials, had not benefited from the de-escalation in trade tensions between the White House and China. Trump last week said he would double tariffs on steel and aluminum imports to 50%.
Seven manufacturing industries including furniture, electrical equipment, appliances and components as well as machinery reported growth. Among the seven reporting a contraction were transportation equipment, chemical products and primary metals.
Economists say the chaotic manner in which the import duties are being implemented is making it difficult for businesses to plan ahead, sentiments echoed by manufacturers. Another layer of uncertainty was added by a U.S. trade court last week blocking most of Trump's tariffs from going into effect, ruling that the president overstepped his authority. But the tariffs were temporarily reinstated by a federal appeals court on Thursday.
