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In February, US manufacturers reported significant decreases in new orders and employment, sparking concerns about the economy’s trajectory as growth expectations also took a hit.
The ISM Manufacturing purchasing managers’ index fell to 50.3 in February from 50.9 in the previous month, hovering just above contraction levels. Additionally, secondary indices indicated a sharp decline in new orders from 55.1 to 48.6.
The Federal Reserve Bank of Atlanta’s latest estimate of GDP for the first quarter suggested a 2.8% drop in US activity, a more severe decline than the 1.5% contraction forecasted earlier.
These figures come amidst worries about the potential impact of President Donald Trump’s trade policies on the US economy, as companies assess the implications of hefty tariffs on major trading partners.
Trump’s plan to impose 25% tariffs on Mexico and Canada starting Tuesday, along with increasing the duty on China to 20%, has raised concerns about the economic outlook.
Commerce secretary Howard Lutnick indicated on Sunday that the details of the tariffs were still being determined, describing the situation as “fluid.”
Economists highlighted that uncertainty surrounding the tariffs is dampening confidence, with a notable increase in a measure of prices paid in the ISM report indicating rising concerns about the inflationary effects of the tariffs.
“Several sectors are experiencing a decline in orders due to heightened uncertainty surrounding trade policy,” noted Oliver Allen, senior US economist at Pantheon Macroeconomics.
He added, “The earlier surge in the ISM manufacturing index from October to January may have been driven by manufacturers rushing to fulfill orders before tariffs take effect – a trend that now appears to be slowing down.”
The projected first-quarter contraction by the Atlanta Fed marks a significant shift after the US economy grew at a rate of 2.3% in the fourth quarter, albeit lower than expected.
The drop in the GDPNow indicator was influenced by poor trade data, weak construction figures, and the lackluster ISM reading.
While Goldman Sachs economists maintain a more optimistic view on GDP, keeping their first-quarter growth estimate unchanged at 1.6% annualized, Jack Kleinhenz, chief economist at the National Retail Federation, highlighted potential challenges ahead.
He noted that despite a strong start to 2025, uncertainties such as immigration restrictions, tariffs, and deregulation could impact the economy negatively.
“Although recent economic data shows strength, we must be mindful of potential downside risks,” Kleinhenz stated.