US manufacturing growth slows due to tariff concerns

WASHINGTON, Apr 03 (AFP): The US manufacturing sector slowed from its torrid pace in March amid growing concerns about trade tensions and tariffs on steel and aluminum, according to an industry survey released Monday.

The price measure rose to its highest level in seven years, while orders, production and employment all slowed, the Institute for Supply Management said.

Although demand remains high, all sectors also are suffering from a shortage of workers and a shortage of skills, said Timothy Fiore, chair of ISM's Manufacturing Business Survey Committee. He said 32 per cent of survey respondents expressed concerns about the tariffs imposed by President Donald Trump on March 23, which affect all sectors, in particular food. Another 10 per cent commented on rising prices. ISM's monthly Purchasing Manufacturer's Index slipped 1.5 percentage points from February to 59.3 per cent, slightly below the consensus forecast among economists, but with 17 of the 18 industries surveyed showing continued growth.

The index for new orders fell 2.3 points, while production dropped a point and employment fell 2.4 points, although all remain in healthy expansion mode. Any reading above 50 per cent signals growth. But prices jumped 3.9 points to 78.1, the highest level since April 2011. That surge "was primarily because of the tariffs. A lot of our industry sectors use steel and aluminum in their conversion activities," Fiore told reporters.

Suppliers began to raise prices within 24 hours of the announcement and also stockpiled the metal in anticipation of being able to sell at a higher price. The price of steel jumped to $860 a ton from $720 previously. While he was upbeat on the outlook for growth due to strong demand, Fiore said if the trade tension with China "continues to accelerate I would expect that you would see some break on expansion just due to general confusion here."

One comment from a machinery company warned about the concern surrounding the tariffs. "This is causing panic buying, driving the near-term prices higher and (leading to) inventory shortages for non-contract customers." A metals company noted the "Significant price increases in the steel commodity... will begin to impact our company's performance." Economist Joel Naroff of Naroff Economic Advisers said manufacturing activity, while slowing, moved from "robust to strong which is hardly anything to worry about" but said trade was more of a concern. "Trade wars are never good for business, no matter what the administration may believe," Naroff said in a research note. "They seem to be willing to accept the pain with the hopes there will be gain and that could happen. It is just that it rarely, if ever, does."

Fiore said that for now the growth of manufacturing remains slightly above the six-month average, with all six big industries expanding, and "no serious disruptive movements."