By Lucia Mutikani
WASHINGTON, May 1 (Reuters) – U.S. 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 U.S.-Israeli war with Iran dominated comments from manufacturers in the Institute for Supply Management survey published on Friday, 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% 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 U.S. 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.
Some transportation equipment manufacturers said while demand was “trending higher” compared to last year, “geopolitical uncertainty and rising oil and diesel prices continue to weigh on demand,” adding that “many customers are exercising caution and remain in a wait-and-watch mode.”
Machinery producers reported “general uncertainty” over the impact of the war, noting that though they had “not yet started to see the full impact of fuel increases but were aware they are coming.”
Makers of computer and electronic products said “continuing fluctuation in U.S. tariffs as well as market constraints for certain materials are affecting our current business.” They also reported that “U.S. support of AI-related industry is also in flux, which is causing some customer and investment hesitancy.”
An artificial intelligence investment boom is helping to anchor manufacturing, which accounts for 10.1% of the economy, and was one of the key drivers of economic growth in the fourth quarter. The construction of data centers to power the technology, however, has been met with resistance in some states.
Stocks were trading higher. The dollar slipped against a basket of currencies. U.S. Treasury prices were largely higher.
SUPPLIER DELIVERY PERFORMANCE DETERIORATES
The survey’s new orders measure rose to 54.1 from 53.5 in March. Its supplier deliveries index jumped to 60.6 from 58.9 in March. A reading above 50 indicates slower deliveries. Supplier delivery performance has slowed for five straight months.
Aluminum was in short supply last month. Supply remained tight for electrical components for the 10th consecutive month, while shortages persisted for electronic components for the 14th straight month. Lengthening delivery times left manufacturers paying more for a range of inputs, including acrylic products, aluminum, oil and electronic components.
“Supply-side indicators are looking a lot like 2021/2022, as the dislocations caused by the Middle East conflict replicate the disruptions seen several years ago,” said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets.
The survey’s prices paid measure surged to 84.6, the highest reading since April 2022, from 78.3 in March.
The Personal Consumption Expenditures Price Index rose by the most in nearly four years in March, the government reported on Thursday, with the annual increase in PCE inflation the biggest since May 2023. That price index is one of the measures tracked by the U.S. central bank for its 2% inflation target. The Fed on Wednesday left its benchmark overnight interest rate in the 3.50%-3.75% range.
With preemptive buying driving orders, the increase in unfilled orders slowed further last month, while the downturn in exports persisted for a second straight month. As a result, factory employment fell for a 15th straight month.
“Among panelists, 60 percent indicated that managing head counts remains the norm at their companies as opposed to hiring, and of those managing head counts, 34 percent are using layoffs and 43 percent using attrition or not backfilling positions,” ISM’s Spence said.
Manufacturing employment has declined by about 85,000 jobs since January 2025.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)
