US Manufacturing Decline Offset by Surge in Services: S&P Global

‘Near-term risks also seem tilted to the downside,’ says a business economist.

Metal cutting machines at a factory in Cleveland, Ohio, on May 26, 2021. Timothy Aeppel/Reuters

A new S&P Global report finds that the U.S. manufacturing sector registered a sharp decline in March, which was offset by an increase in services activity.

According to the S&P Global Purchasing Managers’ Index (PMI)—a monthly survey showing sectors’ prevailing economic direction—manufacturing declined to a lower-than-expected 49.8 this month, down from 52.7 in February.

Anything below 50 indicates contraction.

Following a sharp tariff-fueled increase in output last month, factories reported new orders flatlining in March.

While the industry’s input purchasing dropped, export sales registered their smallest decline in nine months, driven by a surge in orders from Canada, Germany, and other European Union markets.

This resulted from companies attempting to complete their orders before President Donald Trump’s tariff implementation.

Cost pressures intensified in March, with input price inflation soaring to a 31-month high and selling prices climbing to a 25-month high.

Employment, meanwhile, tumbled for the first time since October. Companies reported shedding payroll amid ballooning costs.

The outlook remained positive as business sentiment was the highest in more than three years.

A stronger-than-expected performance in the services sector offset the overall decline in manufacturing.

Services activity rebounded following February’s 15-month low fueled by poor winter weather conditions.

The S&P Global report observed better business inflows and robust customer demand, though exports weakened for the third consecutive month.

On the inflation front, input costs spiked to an 18-month high, and selling prices edged up modestly. Businesses attempted to keep prices competitive.

Trucks wait to cross the Bluewater Bridge border-crossing between Sarnia, Canada, and Port Huron, Mich., on Jan. 29, 2025. Geoff Robins/AFP via Getty Images

“The March survey also saw a modest acceleration in services selling price inflation, albeit to a level that was historically subdued as firms reported the need to offer competitive prices in a weak demand environment,” the report stated.

“The resulting combined increase in prices levied by companies across both sectors was the second largest seen over the past six months—surpassed only by the rise seen in January—but remaining below the survey’s long-run average.”

Looking ahead, companies identified various concerns, including federal spending cuts, tariffs, and wider administration policy changes, that could impact operations and the broader financial markets.

Overall, says Chris Williamson, chief business economist at S&P Global Market Intelligence, the survey figures suggest that the U.S. economy will expand at an annualized pace of 1.9 percent in March and 1.5 percent over the first quarter.

“Near-term risks also seem tilted to the downside,” Williamson said, alluding to tariff worries.

“Firms’ costs are now rising at the steepest rate for nearly two years, with factories increasingly passing these higher costs onto customers.”

Mixed Signals Everywhere

Economic data keeps flashing mixed signals.

Last week, the Federal Reserve reported that domestic manufacturing production increased more than market estimates, driven by a jump in motor vehicle output.

Factory output surged by 0.9 percent in February, up from a downwardly adjusted 0.1 percent gain in January.

Industrial production rose by 0.7 percent in February, up from 0.3 percent in the previous month.

Customers shop at a Walmart store in Chicago on May 18, 2023. Scott Olson/Getty Images

Capacity utilization—a gauge of how companies employ their resources—jumped to 78.2 percent from 77.7 percent to kick off 2025.

While market watchers fear Trump’s tariff plans will rekindle the inflation flame and slow the nation’s growth prospects, the White House has announced a wave of manufacturing investment from U.S. and overseas companies and foreign governments, particularly in artificial intelligence.

Since Trump returned to the White House, nearly $3 trillion in investment has been pledged.

The United Arab Emirates announced a 10-year, $1.4 trillion investment.

Over the past few months, the United States has scored investments from Saudi Arabia ($600 billion), Apple ($500 billion), Nvidia ($100 billion), and Taiwan Semiconductor Manufacturing Company.

In recent days, the White House confirmed a $55 billion manufacturing investment from Johnson & Johnson and $1 billion pledges from Merck and GE Aerospace.

Johnson & Johnson’s investment represents a 25 percent boost in domestic investment from the previous four years.

“Our increased U.S. investment begins with the ground-breaking of a high-tech facility in North Carolina that will not only add U.S.-based jobs but manufacture cutting-edge medicines to treat patients in America and around the world,” Joaquin Duato, CEO and chairman of the health care giant, said in a statement.

Despite the wave of investment announcements, businesses involved in U.S. manufacturing say that uncertainty is a substantial threat to their operations.

A transportation equipment executive stated in an Institute for Supply Management survey that customers have paused new orders “as a result of uncertainty regarding tariffs.”

“There is no clear direction from the administration on how they will be implemented, so it’s harder to project how they will affect business,” the executive said.

An electrical equipment, appliances, and components executive noted that a lack of clarity surrounding tariffs has prompted the company to be “cautious on spending, despite the strong sales right now.”

Outside of the noise triggered by on-again-off-again tariffs, the national manufacturing industry will be driven by reshoring and new business opportunities in the year ahead, says the National Institute of Standards and Technology.

“Many manufacturers are shifting operations closer to home to reduce exposure to international disruptions and logistics issues,” the Feb. 20 report stated.

“Small manufacturers will benefit from reshoring by accessing local or regional supply networks that can provide faster turnaround times and more flexible production.”