US manufacturers reported steep declines in new orders and employment in February, fuelling fears that the economy is losing momentum as growth expectations also fell sharply.
The ISM Manufacturing purchasing managers’ index on Monday dropped to 50.3 in February from 50.9 the previous month, leaving it just above contraction territory, while secondary indices pointed to a sharp fall in new orders from 55.1 to 48.6.
The Federal Reserve Bank of Atlanta’s running estimate of GDP, also published on Monday, pointed to a 2.8 per cent fall in US activity in the first quarter, a much steeper decline than the 1.5 per cent contraction it had suggested on Friday.
The figures come amid growing concerns over the impact that President Donald Trump’s aggressive trade policies will have on the US economy, as corporations weigh the prospect of steep tariffs on the country’s biggest partners.
Trump has said he plans to impose 25 per cent tariffs on Mexico and Canada from Tuesday, and to double the duty on China to 20 per cent.
However, on Sunday, commerce secretary Howard Lutnick suggested that the extent of the tariffs was still to be finalised, describing the situation as “fluid”.
Economists said uncertainty over the tariffs was weighing on confidence, adding that a sharp jump in a gauge of prices paid in the ISM report pointed to rising concerns about the inflationary impact of the levies.
“Several sectors are seeing orders dry up amid elevated uncertainty around trade policy,” said Oliver Allen, senior US economist at Pantheon Macroeconomics.
“At least some of the earlier increase in the ISM manufacturing index from October to January reflected manufacturers hurrying to complete orders before tariffs are applied — a rush that now seems to be petering out,” he added.
The first-quarter contraction indicated by the Atlanta Fed would mark a sharp reversal after the US economy grew at an annualised rate of 2.3 per cent in the fourth quarter, though this was a weaker-than-expected end to a year propped up by a resilient American consumer.
The sharp drop in the GDPNow indicator was influenced by poor trade data, weak construction figures and the lacklustre ISM reading.
Economists at Goldman Sachs were more optimistic on GDP, however, leaving their tracking estimate for the first quarter unchanged at an annualised growth rate of 1.6 per cent.
Jack Kleinhenz, chief economist at the National Retail Federation, said the US economy had entered 2025 with a “fair amount of momentum”.
But he added that the picture was becoming less clear, as a result of “cross-currents” including immigration restrictions, tariffs and deregulation.
“Although recent economic data remains strong, we are concerned about the downside risks,” he said.
