Lucia Mutikani
WASHINGTON (Reuters) - U.S. manufacturing signed for the third straight month in May, with suppliers spending the longest time delivering inputs in tariffs in nearly three years, which could send out some imminent commodity shortages.
President Donald Trump's active trade policy once again dominated comments from manufacturers surveyed by the Institute for Supply Management (ISM) released on Monday, which suppliers are transferring import duties to customers. This challenged the Trump administration’s narrative that China and other trading partners paid tariffs.
Some transport equipment manufacturers describe duplicate tariffs as “harmful damage to suppliers’ responses and ability to stay profitable”, while computer and electronics manufacturers view responsibilities and government spending cuts as “hell with businesses to improve.”
“The prospects in the manufacturing sector are invisible, especially as the initial demand surges now,” said Matthew Martin, senior economist at Oxford Economics. “Businesses are competing for higher input costs, supply disruptions, and customers at home and abroad should be wary of new orders.”
ISM said its manufacturing PMI fell to a six-month low of 48.5 from 48.7 in April. A PMI reading below 50 indicates a contraction in manufacturing, accounting for 10.2% of the economy.
However, PMI in ISM over time indicates an expansion of the overall economy.
Economists who voted by Reuters predicted that the PMI rose to 49.3. The survey shows that manufacturing has relied heavily on imported raw materials but has not benefited from the escalation of trade tensions between the White House and China. Trump said last week that he would impose a 50% levy on steel and aluminum imports.
Seven manufacturing industries include furniture, electrical equipment, appliances and components, and machinery reported growth. Among the seven reports that reported shrinkage were transport equipment, chemical products and metals of origin.
Economists say the chaotic way of implementing import duties makes it difficult for businesses to plan ahead and manufacturers’ emotions reverberate. Last week, the U.S. Trade Court added another layer of uncertainty that prevented most of Trump's tariffs from going into effect, ruling that the president exceeded his powers. However, the federal appeals court temporarily restored tariffs on Thursday.
The tariffs help weigh the single-family construction spending in April. Another report from the Ministry of Commerce's Census Bureau showed that it fell 0.8% in March, construction spending fell 0.4% and new single-family housing projects fell 1.1%.
Stock trading on Wall Street is low. The dollar slips onto a basket of currencies. U.S. Treasury Department's earnings rose.
"Financial Disorders"
Some manufacturers of transport equipment also pointed out that while “vehicle manufacturers have already raised prices into their products to protect their bottom line, they “have less collaborated with supply bases”. They added: “This has caused suppliers to be in financial trouble very high. ”
"Government tariffs alone have caused supply chain disruptions, causing supply chain disruptions to Covid-19," said the manufacturer of electrical equipment, appliances and components.
Paper products manufacturers warned that “the unresolved trade agreement with China will provide shelves of open land for many do-it-yourself and professional goods.”
Machinery manufacturers are concerned about China's export restrictions on rare minerals. Manufacturers that make metal products say their “Asian customers are asking for delays” due to tariffs.
Suppliers pass tariffs to customers. The chemical product manufacturer reported that “the position conveyed is that the supplier believes that its tax is tax, and taxes are always passed to customers,” adding that “few people absorb any part of the tariff.”
Trump sees tariffs as a tool to increase income to offset his promised tax cuts and restore the industrial base of the long-term industry, a feat that is impossible in the short term because of labor shortages and other structural problems.
The supplier delivery index surveyed by the ISM increased to 56.1 from 55.2 in April, the highest since 2022. Readings above 50 indicate slow delivery.
Extended delivery time for suppliers is often associated with a strong economy. But in this case, slower supplier delivery may indicate a bottleneck in the supply chain related to tariffs. Port operators reported a decline in cargo volume.
ISM's import measures fell to 39.9, the lowest since early 2009, at 47.1 in April. Exports are also low. Customer inventory rates reached a 15-month low. The survey reduced from 69.8 in April to a measure of the price of investment paid by manufacturers.
"The pressure on manufacturers to raise their costs further will decrease as inventory decreases because they will eventually have to restock at higher prices," said Oliver Allen, senior economist at U.S. macroeconomics.
Production at the factory remains soft, while new orders are barely improved. The forward-looking new order sub-index surveyed by the ISM accounted for 47.6 from 47.2 in April.
The factory continues to lay off employees. The survey's manufacturing employment measure rose to 46.8 from 46.5 in April. Susan Spence, chairman of the ISM Business Inquiry Committee, said respondents’ comments reflect an accelerated reduction in total due to uncertain near-to-medium demand.
"In the context of an inappropriate tariff policy, most businesses sit in their hands as they wait for more sensitive signs," said Shannon Grein, an economist at Wells Fargo.
(Reported by Lucia Mutiati; Edited by Chizu Nomiyama and Andrea Ricci)