U.S. Manufacturing Contracts for Ninth Month…"Tariffs Deal Biggest Blow to Manufacturing"

Tariffs raise input costs, orders fall, staff cutbacks

Economists: "Inflation expected to persist into early next year"

"U.S. manufacturing recovery unlikely due to structural problems such as labor shortages"

The tariffs that began as a move to revive U.S. manufacturing have ultimately been found to inflict the greatest damage on U.S. manufacturing. U.S. factories are facing a sharp drop in orders due to the burden of import tariffs and rising prices for tariffed inputs such as steel, aluminum and various parts.

According to a survey by the Institute for Supply Management (ISM) released on the 1st local U.S. time, the U.S. manufacturing PMI recorded 48.2 in November, following 48.7 in October. Fifty is the dividing line between expansion and contraction, and U.S. manufacturers have remained below 50 for nine consecutive months from March through November.

The ISM new orders index fell sharply from 49.4 in October to 47.4 last month. Demand decreased as product prices rose with tariff increases.

Some manufacturers said that with the recent end of the federal government shutdown, there could be a slight improvement in December, but factory activity is still expected to be sluggish.

In the ISM survey, four industries, including computers and electronic products and machinery, recorded growth. Industries that declined included wood products, transportation equipment, and textiles. Import tariffs have weakened manufacturing overall, but some sectors are being revitalized by a surge in artificial intelligence (AI) investment.

Respondents in the transportation equipment sector to the ISM survey said that due to tariffs they are "pursuing structural changes such as staff reductions, expanding overseas production facilities, and shareholder-related directives."

Manufacturing employment indicators have declined for ten consecutive months. Shannon Grein, an economist at Wells Fargo, said, "A bleak signal for blue-collar workers at a time when employment prospects are difficult."

Some chemical manufacturers said, "Demand for adhesives and sealants for building materials continues to decline due to tariffs and economic uncertainty." Miscellaneous goods manufacturers also reported, "Business conditions have worsened due to cost increases from tariffs and the government shutdown."

Producers of electrical equipment, appliances and components complained of an "increase in trade disruption," and most manufacturers said, "More errors are being found when suppliers export to the United States."

Some machinery manufacturers said, "Imports take a long time to be transported," and the metalworking products industry reported, "Lead times have lengthened as raw material suppliers were reduced."

Despite weak factory orders, manufacturers said they paid more for inputs last month. This suggests that the inflation rate could exceed the Fed's 2% target for some time. The ISM survey's producer price index (PPI) rose from 58.0 to 58.5 month-on-month.

Oren Klachkin, an economist at Nationwide, said, "This indicates a continued risk of rising goods prices." He predicted, "Inflation will be somewhat firm until early next year, and then the price rise will weaken once the effects of tariffs dissipate."

Last week's Federal Reserve Beige Book report noted that manufacturing activity increased somewhat in some of the Fed's 12 districts, but "tariffs and tariff uncertainty remain a headwind."

Uncertainty from tariffs is unlikely to be resolved for the time being. Last month, U.S. Supreme Court judges raised questions about the legality of President Trump's imposition of tariffs. If an unfavorable ruling is issued, switching to other trade strategies could create further disruption.

Steven Stanley, chief U.S. economist at Santander US Capital Markets, said, "Manufacturing continues to struggle amid an unpredictable tariff situation."

President Trump touted tariffs to revive U.S. manufacturing, but economists argued that structural problems such as labor shortages make a return to the previous state impossible.

Carl Weinberg, chief economist at High Frequency Economics, said, "There are no signs of U.S. manufacturing reviving since President Trump's imposition of tariffs," emphasizing that "the manufacturing sector has been severely hit."

Kim Jeong-ah, guest reporter kja@hankyung.com