WASHINGTON, D.C. ― US 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.
Concerns about the US-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 percent 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 US 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 US tariffs as well as market constraints for certain materials are affecting our current business." They also reported that "US 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 percent 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. US Treasury prices were largely higher.
