Mixed data for manufacturing this month suggests uncertainty
Mixed data for manufacturing this month suggests uncertainty
‘Twas the night before new tariffs, and manufacturers … well, a lot of them were holding their breath to see what’s next. There was optimism after President Donald Trump was elected, but since he took office the future has gotten a little murky.
Just take a look at the two different indicators for the manufacturing sector out Monday: S&P Global’s Purchasing Managers’ Index went up and the Institute for Supply Management’s Report on Business went down.
There’s a word that Erin McLaughlin, a senior economist at The Conference Board, knows we’re sick of hearing. But when it comes to the manufacturing sector, she said: “Uncertainty is slowing things down a little bit.”
The ISM found new orders decreased in several industries in February. McLaughlin said price uncertainty has made it harder for manufacturers to plan for and source materials.
“A lot of end users may not want to stock up on inventories and backlog because they don’t know if the prices are going to go down or up, or if they have to source from other places,” she said.
And prices are up for manufacturers even though Trump’s tariffs haven’t taken effect.
“The uncertainty is equivalent to a tariff. He doesn’t even have to put a tariff on to be raising firms’ costs,” said Teresa Fort, a professor of business at Dartmouth College.
She said the expectation of a tariff can raise costs because firms become unwilling to, say, take a chance on a new production line.
“If firms basically think that there’s a good chance that that tariff is going to come along, they’re not going to import the good. They’re not going to invest in importing that good. And so then our supply is still limited. And so when supply is limited, but then prices are higher,” she said.
Regional federal reserve banks also collect manufacturing data. Dallas Fed economist Emily Kerr said those have been a mixed bag. In terms of Texas:
“I think a lot of that optimism is there. I think the spike that we’re seeing in February in particular is an uncertainty,” she said.
Since the election, firms have been optimistic about a business friendly climate. Now it’s less clear.
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