US manufacturing activity held steady in April, but supplier delivery performance worsened as the war in the Middle East disrupted shipping in the Strait of Hormuz, boosting prices for raw materials and other inputs to a four-year high.
Concerns about the US-Israeli war with Iran dominated comments from manufacturers in the Institute for Supply Management survey published yesterday, with some makers of chemical products saying “all products tied to crude, polyethylene resin or energy have seen multiple increase spikes tied to the Iran crisis and market supply inflation.”
Crude oil prices have jumped more than 50 per cent since the war started on February 28. Tariffs on imports also remained a constraint and accounted for the surge in inflation at the factory gate.
The rise reinforced economists’ expectations that inflation would accelerate further this year. Financial markets expect the Federal Reserve will keep rates unchanged into 2027.
“The Fed will pay attention to this, no matter who is serving as FOMC (Federal Open Market Committee) chair,” said Carl Weinberg, chief economist at High Frequency Economics.
“What we hear from purchasing managers is that the cost of everything coming in the door has gone up because of higher fuel costs for deliveries.”
The ISM said its manufacturing PMI was unchanged at near a four-year high of 52.7 last month. The PMI remained above the 50 level, which indicates expansion in the manufacturing sector, for a fourth straight month. Economists polled by Reuters had forecast the PMI would rise to 53.
The PMI was anchored by an increase in new orders as businesses rushed to avoid shortages and higher prices stemming from the war. ISM Manufacturing Business Survey Committee Chair Susan Spence noted that “among comments, the war was mentioned in 47 percent and tariffs in 18 percent.”
Prior to the war, manufacturing had been slammed by President Donald Trump’s sweeping tariffs on imports, which were struck down by the US Supreme Court. New duties have been put in place by the White House, which has argued that the import duties are necessary to rejuvenate the domestic industrial base.
Thirteen industries reported growth last month, including textile mills, primary metals, transportation equipment, machinery, electrical equipment, appliances and components as well as computer and electronic products. But makers of wood, petroleum and coal, and food, beverage and tobacco products reported a contraction.
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