MANUFACTURING PMIs

USA: Production declines in March as order book growth slows on tariff uncertainty

The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI^®) remained above the crucial 50.0 no-change mark for a third successive month in March, but only just. Recording 50.2, down from 52.7, the PMI signaled a marginal improvement in operating conditions that was the weakest of the year so far.

A drop in production for the first time since December weighed heavily on the headline index. The modest fall in output was in stark contrast to the fastest rise in production for nearly three years seen during February and partly reflected fewer instances of output being raised to front-run tariffs.

Market uncertainty was also frequently reported, linked to concerns over tariff implementation and federal government policies. This served to weigh on new order book growth, which was modest overall in March and the lowest of the year so far. Where orders rose, panelists noted success in capitalizing on some positive underlying demand via trade shows and the release of new products. Latest data also hinted at efforts to fulfil orders ahead of any tariff implementation as new export orders stabilized following nine months of contraction. Orders were reported to have increased from clients based in Asia, Canada and Europe during March.

Confidence in the outlook softened again in February, dropping for a second successive month to its lowest level since December. This was linked to uncertainty over the impact of federal government policies on activity in the year ahead, although some firms expect in time to see benefits from tariffs through an increase in domestic demand and improved market share.

Employment was unchanged in March, following a four-month run of growth. Sluggish demand growth and elevated costs weighed on hiring activity, according to anecdotal evidence. Capacity nonetheless remained sufficiently high to comfortably deal with overall workloads.

Levels of work outstanding declined in March at the fastest rate since December, to thereby extend the current period of contraction to two-and-a-half years.

Against a backdrop of falling output and slower order book growth, manufacturers signaled a modest cut in purchasing activity. Instead, firms preferred to utilize existing inputs in production wherever possible, recording a drop in stocks of inputs following marginal growth in February.

Despite weaker demand, average lead times for the delivery of stocks nonetheless continued to lengthen, extending the current downturn to six months. Insufficient stocks at vendors were noted, although some firms reported delays at customs as a factor behind the slower delivery of ordered inputs.

Vendors were generally seen as raising their prices during March. This was in part related to tariffs, with metals like steel reported to have increased in cost. Overall, input price inflation spiked higher in March, hitting its highest level since August 2022.

The steep increase in input prices fed through to a greater rise in manufacturing selling prices during March. Latest data showed that output price inflation picked up for a fourth successive month to a 25-month high.

• ISM Manufacturing Back in Contraction as Tariff Pressure Bites

Tariff-related uncertainty was seen throughout the March ISM release. The overall index came in at 49.0, indicating manufacturing activity contracted again after expanding the prior two months. Out of the five components that feed directly into the headline metric, manufacturing inventories was the only one to expand last month, as a pull forward in demand ahead has led to stockpiling of inputs among manufacturers. The inventory component hit 53.4, which is the highest level since late 2022, when the economy was dealing with pandemic-related supply snarls. Today many are rushing to secure inputs ahead of tariffs to mitigate the initial cost impact.

This mad dash to secure inputs is also manifesting in higher prices. The prices paid component rose 7.0 points to 69.4 in March. That also marks the highest since mid-2022, and as seen by the nearby, input prices have been trending higher over the past four months.

Price pressure appears broad with 15 of 18 industries reporting higher prices and looks mostly tariff related. The accompanying release notes prices were, “driven by dramatic increases in steel and aluminum prices as a result of recently deployed tariffs. Corrugate, copper and plastic resins have all experienced price growth as companies move to minimize their exposure to foreign-made goods, causing domestic prices to rise amid new demand.” A reported 46% of companies reported higher prices in March, up from a 12.2% low hit just five months ago.

Source: Institute for Supply Management and Wells Fargo Economics

With everyone trying to secure product, business are strained in their ability to meet accelerated deliveries. This was evident in still-high supplier deliveries, despite the measure coming in a bit to 53.5 last month. But despite the tariff-related flurry of demand, underlying conditions remain depressed. New orders hit 45.2, which is the lowest index reading in a year and a half and production also slipped back into contraction in March as most businesses halt investment.

The employment situation also remains grim within manufacturing. Only one industry reported hiring in March (primary metals) and the index reading slipped to 44.7 after briefly expanding at the start of the year. The release noted “freezing and attrition were the primary tools used for the second straight month, in lieu of the more dramatic and costly layoff process.”

While this may smooth the hit to broader nonfarm employment, out Friday, lower net hiring figures leave little room for layoffs to rise. While hiring figures are stable, the labor market has weakened and the Fed’s task on fully stomping out inflation is made all the more challenging in this environment.

Source: Institute for Supply Management and Wells Fargo Economics

Canada: Steepest drop in new orders since May 2020 drivesfurther deterioration of manufacturing sector

New orders declined to the greatest degree since the height of the COVID-19 pandemic. Overall, the contraction was the steepest since May 2020 and therefore amongst the fastest recorded in the survey history (data were first collected in October 2010).

Export trade especially suffered, with latest data signalling the joint-second steepest reduction in exports in the survey history (surpassed or equalled only by the falls registered in April-May 2020).

Production, purchasing and employment were all reduced noticeably. Confidence in the outlook slumped to its lowest level in the respective series history.

On the price front, tariffs already applied on metals products, plus uncertainty over when customs surcharges could be levied on a wider range of goods, resulted in input costs and output charges rising at noticeably steeper rates.

Mexico: Business confidence takes a hit as downturn in sales intensify

(…) In addition to the challenging operating environment reported for March, firms downgraded output growth forecasts for the year ahead. Anecdotal evidence showed that panellists foresee headwinds from investment retrenchment, reduced client numbers and tariffs.

Amid tariff announcements and reports of cashflow problems among clients, new business intakes decreased in March. The latest fall was the ninth in successive months and the sharpest in over three years.

Weighing on overall order book volumes was foreign demand, which worsened to the greatest extent since March 2021. The US stood out as the main source of lower external sales in the qualitative part of the survey. (…)

Wells Fargo starts its analysis of ISM data with “Tariff-related uncertainty “. Reading through all these surveys, I only see certainty: U.S. demand for goods is falling rapidly:

• Weak new orders, domestically and to Canada and Mexico.
• Backlogs declined in March at the fastest rate since December
• Employment was unchanged in March
• Price pressures appear broad, even domestic prices rose from import substitution

U.S. manufacturing is in stagflation.

New orders also declined in the Eurozone but at a slower rate dans in previous months.

China saw rising new orders, even “the fastest rise in new export orders in just under a year”, leading to backlogs increasing for the 6th consecutive month.

John Authers today:

(…) But the eye-catching data came on the balance between new orders and inventories. As the chart shows, inventories exceed new orders by the greatest amount in four decades, with the sole exceptions of the worst months of the Global Financial Crisis and the Covid lockdowns:

This is not healthy. If companies have a lot of stuff on hand, and few orders, they will likely do less business and activity will fall. By contrast, when inventories are low, there’s a chance of a restocking boom as companies ramp up to meet demand. On this occasion, tariffs are an obvious explanation. Companies brought forward their imports to beat duties. They now have excessive inventories and the odds are that they’ll be reducing production in the months ahead. That could be a total blip when it turns out tariffs don’t change the landscape much; it might be transitory, as they soon return to old practices but now paying tariffs on goods they import; or it might prove to be a lasting change. On its face, however, it’s bad. (…)

What’s most interesting is that while US manufacturers are having to pay more for inputs, their counterparts in the rest of the world are not. This chart is from Ariane Curtis, senior global economist at Capital Economics:

Manufacturers elsewhere will have to await news on retaliation by their own governments, so it makes sense that the US encounters this issue first. For now, it makes US assets less attractive, and points toward a nasty dose of stagflation. Retaliation can be expected to turn the other lines upward.

February JOLTS: Uncertainty Can Be Paralyzing

After a solid fourth quarter, labor demand is showing additional signs of moderating in the early innings of 2025. Job openings slipped to 7.57 million in February and the ratio of job openings to unemployed workers fell back to 1.07—its lowest since September 2024. With renewed headwinds to growth, further declines in vacancies risk signaling outright weakness rather than a return to a balanced labor market. (…)

With the ratio of job openings to unemployed workers having fallen back to 1.07—its lowest since September of last year, when cracks in the labor market inspired a 50 bps cut from the Fed—further decreases in openings will look more like outright weakness than a stabilization of labor supply and demand. (…)

This JOLTS is for February. The more current Indeed Job Openings (through March 27) point to an even weaker print in March, setting the stage for Friday’s employment report.

Brazil Looks Like a Winner in the Global Trade War Exporters bank on higher Chinese demand as Latin American power looks for new trade opportunities

Chinese buyers are already stockpiling Brazilian soybeans as Beijing retaliates against President Trump’s tariffs with levies on U.S. agricultural producers. Brazilian suppliers of everything from cotton to chicken are banking on higher Chinese demand. (…)

The preparations reflect a trade relationship between Brazil and China that has expanded significantly in recent years. Rich in beef, iron ore and oil, Brazil has raw materials that China’s vast population needs. China, meanwhile, has capital that Latin America’s biggest economy needs to build much-needed infrastructure. (…)

Brazilian President Luiz Inácio Lula da Silva last week visited Japan, where he agreed with Prime Minister Shigeru Ishiba on measures to open the country to Brazilian beef imports. Japan currently imports some 40% of its beef from the U.S. under a 2019 agreement, a deal analysts said could now be in doubt after Trump announced tariffs on global auto imports.

“Trump is not the world’s sheriff—he’s only president of the United States,” da Silva said during the visit. “We need to overcome protectionism and make sure that free trade can grow.” (…)

U.S. farmers lost almost $26 billion in agricultural exports in 2018 and 2019, according to the Agriculture Department. (…)

Since overtaking the U.S. as Brazil’s biggest trading partner in 2009, China has invested more than $70 billion in the Latin American country, courting business leaders and politicians alike. Chinese companies control around 10% of Brazil’s electricity supply, built many of its ports and roads and are constructing hundreds of miles of railroads. Chinese-made cars are now ubiquitous in São Paulo, Brazil’s financial center. (…)

Deeper trade ties between Brazil and China have strategic implications for Washington. U.S. officials have said they see an economic and military threat in the deep presence China has in Latin America, particularly in projects that could have military use, such as a deep water port completed last year in Peru and a satellite-tracking station in Argentina.

Brazil has recently focused on expanding its limited rail network to cut costs and tackle food inflation. In its inaugural project in the country, the state company China Railway has been building part of the so-called Fiol railroad that connects Brazil’s central farming belt to ports in eastern and northern Brazil. (…)

• China senses an opportunity in Trump’s cultural revolution Policymakers in Beijing believe they will benefit from the destruction of America’s global credibility

Martin Wolf just spent 2 weeks in China.

(…) It has dawned on just about everybody by now that Trump’s signature is worthless. A man who is trying to demolish the Canadian economy is not going to be a reliable friend to anybody else. So, the alliances the US will need to balance China in its own neighbourhood or, for that matter, anywhere else are likely to be very fragile.

This applies even to Japan and South Korea, let alone other neighbours. In this environment, China, the Asia-Pacific’s principal trading power, as well as a rapidly rising military power, is bound to dominate not just the region, but well beyond that. Even Europe, concerned about Russia and so openly abandoned by the US, will seek a friendlier relationship with China. Trump’s “America First” is bound to mean America alone. (…)

DeepSeek has given the Chinese a big boost in confidence. They believe that the US can no longer block their rise. (…) This is not just about DeepSeek, but also about Chinese domination of the “clean energy sector. (…)

China Restricts Companies From Investing in US as Tensions Rise

China has taken steps to restrict local companies from investing in the US, according to people familiar with the matter, in a move that could give Beijing more leverage for potential trade negotiations with the Trump administration.

Several branches of China’s top economic planning agency, the National Development and Reform Commission, have been instructed in recent weeks to hold off on registration and approval for firms that are looking to invest in the US, the people said, asking not to be identified discussing sensitive issues.

While China has previously placed restrictions on some overseas investments for reasons linked to concerns about national security and capital outflows, the new measures underscore tensions playing out between the world’s two biggest economies as Donald Trump ramps up tariffs. China’s outbound investments into the US totaled $6.9 billion in 2023, according to the latest available figures. (…)

It’s unclear what prompted the NDRC to halt the processing of applications or how long this suspension might last. (…)

While the latest restriction mostly applies to corporate investment in the US, the move adds uncertainty for firms that are seeking to shift production abroad to bypass the trade barriers and attempt to navigate an intensifying global standoff. (…)

China Ties US Talks to Tariff Removal as Stalemate Deepens

China’s top diplomat called on the US to remove tariffs it imposed on Chinese goods for Beijing’s alleged role in America’s fentanyl crisis before holding any talks on the matter, deepening a stalemate weighing on trade ties between the world’s two largest economies.

“If the US side really wants to solve the fentanyl problem, then it should cancel the unjustified tariff increase and engage in equal consultation with the Chinese side,” Chinese Foreign Minister Wang Yi said in an interview with Russian state-run news service RIA Novosti on Tuesday.

Wang’s demand came over a week after US President Donald Trump’s ally Steve Daines met with top Chinese officials and asked Beijing to stop the flow of the drug’s ingredients into the US as a condition for talks. The opposing requests dim the prospect of high-level talks to ease tensions a day before the US president is set to announce his so-called reciprocal tariffs on global trade partners. (…)

Wang made the comments during a visit to Moscow where he met with Russian President Vladimir Putin and Foreign Minister Sergei Lavrov. During his discussions — taking place just over one month ahead of a planned visit to Russia by Chinese leader Xi Jinping — Wang reiterated the importance of China-Russian ties, describing the two nations as “forever friends and never enemies.” (…)

SENTIMENT WATCH

Investors Bet Clarity on Tariffs Will Bring Stability to Markets Stocks have calmed with Trump poised to unveil trade agenda on Wednesday

Stocks’ calm this week shows investors continue to bet that clarity on trade will bring stability to markets. (…)

Investors and analysts have offered several explanations for the stock market’s resilience. Those include:

• Investors’ continued confidence that Trump won’t stick with any tariff policy that would cause a serious drag on growth.

• Their view that they need to see more signs that the economy is actually in trouble before they bet on a recession.

• A belief that more information about Trump’s tariff plans will reduce the uncertainty rattling stocks.

(…) Most investors acknowledge that Trump is more committed to tariffs than Wall Street had generally assumed at the start of the year. (…)

Trump, though, has also already twice backed down from imposing broader tariffs on Canadian and Mexican imports. And he has cheered investors with talk of being flexible and “lenient” with other countries.

One worry is that the back-and-forth about tariffs, almost as much as tariffs themselves, could hurt the economy by causing businesses to delay investments.

Though some are hopeful that “peak uncertainty” might already have passed, few investors expect complete transparency soon, with Trump’s impending moves set to kick off a turbulent period of negotiations, retaliations and lobbying among countries and businesses. (…)

Confused about Trump’s intentions, investors have tried their best to at least get a sense for how the economy is doing now—arguably at the height of tariff uncertainty.

The results, for many, have been encouraging. Repeated surveys have shown a sharp drop in consumer and business sentiment. But so-called hard data has shown a much more moderate decline in their actual spending, providing a lift for markets in recent weeks.

According to one recent report, consumer spending rose 0.4% in February—a touch below economists expectations but a jump from a 0.3% decline in January when cold weather helped depress demand. The latest monthly jobs report for February showed still solid payrolls growth, with the unemployment rate continuing to hover just above 4%. (…)

Is this red marker really “encouraging”?

And the JOLTS report was for February, missing all the “fun” since.

Are CEOs seeing something investors don’t want to see? Apollo shows that their recent collapsing confidence is the worst since 2007 other than covid (my red circle).

BTW: The influential BCA Research tomorrow will present its “Second Quarter Strategy Outlook: The 2025 Recession” discussing

• The underestimated impact of the trade war on global growth.
• Why monetary and fiscal policies won’t be enough to prevent a downturn.
• How Europe’s fiscal policies may slow growth in the near term.
• Why China’s stimulus efforts will remain reactive rather than proactive.
• His bearish outlook, including an end-2025 S&P 500 target of 4450.

We’ve been having the “S” word (stagflation) which few investors know about, but if we start getting the “R” word …

AI CORNER

A Big Coal Plant Was Just Imploded to Make Way for an AI Data Center The country’s largest natural gas power plant is planned east of Pittsburgh

The owner of what was once Pennsylvania’s largest operating coal plant just imploded it to make way for a giant AI data-center campus that will be powered by natural gas instead.

The site in Homer City, Pa., about 50 miles east of Pittsburgh, is expected to house what would be the country’s largest gas-fired power plant, according to owner Homer City Redevelopment.

At up to 4.5 gigawatts, the plant could nearly power Manhattan. Its output would more than double that of the original coal facility and be roughly equivalent to Georgia’s Vogtle plant, the country’s largest nuclear power site.

The race to build advanced training models for artificial intelligence requires massive amounts of electricity and land, which is sending the tech industry into rural America. Big Tech is a major backer of clean-energy projects, but the amount of round-the-clock power the companies need as quickly as possible has them leaning on new natural-gas projects to fuel their AI ambitions. (…)

New data centers are increasingly being built near some of the country’s largest oil and gas reserves for access to the city-sized amounts of power that they need to train large AI models. (…)

The site can provide power to both the New York Independent System Operator and PJM Interconnection, the regional transmission organization and electricity market serving Washington, D.C., and 13 states.

A capacity auction last year in PJM, the nation’s largest wholesale electricity market, signaled a shortage of power plants that can provide baseload supplies. The retirement of aging plants and increased electricity demand from new customers such as data centers are helping push prices higher.

The site has the ability to draw about 1 gigawatt of power from the grid in the near term, with more power becoming available for data centers and the grid as the plant is built. (…)

Big Oil Morphs Into Big Gas in China as EVs Slash Fuel Demand

The nation’s gas output is poised to surpass that of crude oil for the first time this year, with each of the three state-owned majors — PetroChina Co., Cnooc Ltd. and Sinopec — setting higher production targets for the cleaner-burning fuel. To deliver that growth, the firms are expanding into technically challenging areas including unconventional shale fields and deep-water reserves.

The shift to gas has been underway for years, initially spurred on by the government’s desire to clear the coal-fired smog that used to choke its megacities. But the transition has become more urgent as the electric-vehicle boom slams the brakes on oil consumption, leaving gas as the only upstream growth market for drillers. (…)

The production push in the world’s largest gas importer threatens to add to a coming wave of global supply, led by new liquefied natural gas export plants that are due to come online in places like Qatar and the US over the next few years. More gas is also being piped overland from Central Asia and Russia, China’s strategic partner since the invasion of Ukraine.

With economic growth constrained by the slowdown in the real estate sector, Chinese energy firms are being forced to resell unneeded cargoes of the fuel to other buyers in Europe and Asia. Domestic gas prices in China are already showing signs of weakness. China produces enough gas to meet about 60% of its own consumption. (…)

The gas boom is needed to replace the industry’s traditional oil business, which is struggling as China rapidly adopts EVs. Refining profits last year were battered after overall oil consumption dropped 1.2% compared to a 7.3% rise in gas demand.

MAGA’s brutal jolt

The Democratic win in the Wisconsin Supreme Court race was huge: 10 points (55% to 45%, with 98% of the vote, or 2.3 million votes in).

In Florida, Republicans won both their U.S. House special elections but Democrats cut Trump’s margin by 22 points in Matt Gaetz’s old seat, and 16 points in national security adviser Mike Waltz’s district.

The three results show real midterm danger for Republicans. (…)

In Wisconsin, Republicans were drubbed even with $25 million poured in by Elon Musk.

He campaigned in Wisconsin and cast the race in apocalyptic terms: “A Supreme Court election in Wisconsin might determine the fate of America,” he tweeted last week, later topping that with saying it “might decide the future of America and Western Civilization.”

MANUFACTURING PMIs

Eurozone factory output rises for first time in two years

The HCOB Eurozone Manufacturing PMI rose for the third consecutive month in March to 48.6 (February: 47.6). While this still pointed to a deterioration in the health of the goods-producing sector, the PMI signalled a decline that was only modest overall and the softest since January 2023.

Just two of the euro area nations covered by the PMI surveys posted expansionary Manufacturing PMI readings in March – Greece and Ireland. Greece’s upturn was strong overall and the fastest in almost a year, whereas Irish growth lost momentum. Industrial business conditions remained challenging elsewhere, although there were some tentative signs of recovery, particularly in the currency union’s big-two economies of Germany and France as Manufacturing PMI figures here were the highest for 31 and 26 months, respectively.

A renewed increase in factory output across the euro area was the highlight of the latest HCOB PMI survey data. Although only marginal overall, the expansion was the first in two years and the most marked since May 2022. Notably, production growth was accomplished despite a further monthly fall in volumes of incoming new business. New factory orders fell in March, as they have done continuously for almost three years, but the rate of decline was the weakest over this period. Export markets remained a drag on sales performances, with demand from foreign clients decreasing further. That said, the pace of contraction was the softest since April 2022.

The level of backlogged work shrank across the eurozone manufacturing sector in March as a rise in output came in tandem with lower new business intakes. However, the extent to which outstanding orders declined was the least pronounced since July 2022.

Eurozone factories made further cuts to their workforce numbers at the end of the first quarter amid signs of excess capacity. That said, the rate of job shedding cooled from February’s four-and-a-half-year record and was the softest in seven months.

Eurozone manufacturers reduced their quantities of purchases at the end of the first quarter, albeit to an extent that was the least marked in just over two-and-a-half years. Nevertheless, pre-production inventories shrank at a slightly faster pace than in February. Stocks of finished goods were also reduced, as they have done in every month for almost two years.

Meanwhile, surveyed factories in the euro area reported speedier supplier delivery times. In fact, the degree to which vendor performance improved was the greatest since June last year.

Input prices for eurozone manufacturers continued to rise in March, extending the inflationary trend seen in the year-to-date.

The pace of increase also accelerated to a seven-month high but remained muted in comparison to the survey trend. Prices charged for goods produced in the euro area rose marginally amid an intensification of cost pressures, marking the first monthly rise since August last year.

Looking ahead to the coming year, euro area manufacturers foresee greater production volumes, with growth expectations slightly above the series average. However, the level of optimism dipped to a three-month low.

China: Manufacturing sector conditions improve at fastest pace in four months

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI®) improved to a four-month high of 51.2 in March, up from 50.8 in February. This marked the sixth successive month in which the index has posted above the neutral 50.0 mark, signalling an improvement in manufacturing sector conditions.

Manufacturing production growth accelerated for a third straight month in March and contributed to the latest uplift of the headline index. Chinese manufacturers indicated that they raised production in response to higher new orders. Better demand conditions, alongside successful business development efforts and the launch of new products, underpinned the latest uptick in new business inflows. External demand improved as well, with firms signalling the fastest rise in new export orders in just under a year.

Growth in new orders contributed to a further accumulation of backlogged work. This was the sixth successive month in which the level of unfinished business has increased across the Chinese manufacturing sector. To cope with rising workloads, Chinese manufacturers hired additional staff. This resulted in the first increase in staffing levels since August 2023, albeit only marginal.

Meanwhile, purchasing activity expanded at an accelerated rate to meet production requirements. The sustained expansion of buying activity contributed to a renewed rise in stocks of purchases. Firms also mentioned that they had raised their pre-production inventory holdings as lead times for inputs deteriorated. Shipping delays were often mentioned as the reason for the first lengthening of suppliers’ delivery times since last October.

On the other hand, post-production inventories declined for a second straight month in March as finished goods were shipped out for order fulfilment.

Turning to prices, supplier discounts and reductions in certain raw material costs contributed to the first fall in average input prices in six months. The reduction in cost burdens enabled Chinese manufacturers to reduce their factory gate prices in March. Export charges also fell slightly. Anecdotal evidence suggested that greater market competition weighed on selling prices at the end of the first quarter of 2025.

Finally, business sentiment across China’s manufacturing sector remained positive in March as firms were hopeful that the introduction of new products and promotional efforts would boost sales and output in the next 12 months. That said, the level of optimism slipped further below the series average as some goods producers noted rising uncertainties with additional trade barriers around the world.

Japan: Manufacturing downturn deepens in March

The headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index™ (PMI®) fell from 49.0 in February to 48.4 in March, to signal a decline in the health of the sector for the ninth successive month. Though modest, the rate of deterioration was the quickest seen for a year.

Data broken down by sector indicated that operating conditions deteriorated at a faster pace across the intermediate and investment goods segments. Consumer goods makers meanwhile signalled the first decline in the health of its sector for eight months.

Manufacturing production in Japan fell for the seventh month running in March, and at the quickest pace in a year. The drop was commonly linked to weaker customer demand, with total new work falling at a similarly solid pace. New export business also declined again, albeit only marginally, with panellists citing muted demand conditions across key markets such as Mainland China and the US.

Lower sales and production requirements led factories to cut back on input buying again in March. Notably, the rate of decline was the quickest seen in just over a year and solid. Inventories of both pre- and post-production items were meanwhile trimmed as firms readjusted stock levels to reflect current demand conditions.

Supplier performance was broadly stable in March, helped in part by reduced demand for inputs.

Although market conditions were relatively subdued, manufacturing firms in Japan added to their workforce numbers in March. Though modest, the rate of job creation was the quickest seen in 2025 so far. The upturn was linked to the filling of vacancies and in anticipation of higher workloads in the months ahead. Greater staff numbers and fewer orders meanwhile contributed to a further reduction in outstanding business, which fell solidly.

Cost pressures remained acute at the end of the first quarter, with firms signalling a further sharp rise in average input prices. Anecdotal evidence indicated that higher costs for labour, materials, energy and transport contributed to greater expenses, alongside an unfavourable exchange rate.

Firms partly passed on their higher cost burdens to customers in the form of higher selling prices. The rate of charge inflation softened to a five-month low, but remained solid overall.

When assessing the one-year outlook, Japanese goods producers were generally confident that output would rise from current levels over the next year. That said, the level of positive sentiment picked up only slightly from February and was the second-lowest since April 2022. Optimism was often linked to forecasts of firmer global demand and an associated boost to sales. However, a number of firms expressed concerns over inflation and increased uncertainty over the international trade environment.

China Says It Is Aiming to Coordinate Tariff Response With Japan, South Korea

China is seeking to coordinate its response to U.S. tariffs with Japan and South Korea, Chinese state media said Monday, as the world’s second-largest economy looks to bolster regional economic collaboration.

Japanese and Korean officials said there was no decision to coordinate action with Beijing, but said the countries have recently discussed trade issues amid three-way talks over the weekend, the first such dialogue in five years.

A social-media account run by China’s state broadcaster said in a Weibo post on Monday that the three countries will strengthen dialogue on supply-chain cooperation and export controls, and plan to conduct speedy negotiations toward a trilateral free-trade agreement.

According to the post, Japan and South Korea are hoping to import some semiconductor raw materials from China, while China is also interested in importing chip products from Japan and South Korea.

A South Korean trade ministry spokeswoman told The Wall Street Journal that there were “some exaggerated aspects” in the Chinese social-media post.

“The three countries exchanged views on the global trade environment, and as you can see in the joint statement, you can understand that they shared an understanding of the need for continued economic and trade cooperation,” she said, referring to a statement published by the three countries on Sunday.

Japan’s trade minister Yoji Muto said at a news conference on Tuesday that the three countries exchanged opinions on the trade environment but added that they didn’t reach any agreement to take joint action against U.S. tariffs.

The comments come after senior trade officials from the three Asian export hubs held their first economic dialogue in five years on Sunday as they gear up for more tariffs from the U.S. this week. (…)

All three are major trading partners of the U.S. running historically high trade surpluses. Japan and South Korea are among the top auto exporters and steel suppliers to the U.S. (…)

In response to the auto tariffs set to take effect on April 3, South Korea said it planned emergency support for the auto industry, with trade minister Ahn Duk-geun saying the industry faced “considerable damage.”

Tokyo has said it will keep asking Trump for a tariff exemption, with Prime Minister Shigeru Ishiba saying Japan will “thoroughly examine the impact on domestic industries and employment and take all necessary measures.”

Relations among Beijing, Seoul and Tokyo have been strained over the years by issues including territorial disputes. Some analysts say that Trump policies could shift relations between the three Asian countries, particularly as Japan and South Korea stand to be among the hardest hit by U.S. tariffs.

“We reaffirmed our conviction that trilateral efforts in the economic and trade sectors are essential for fostering the prosperity and stability of the regional and global economy,” according to a joint statement released by the three Asian countries after the Sunday meeting.

The countries also said Sunday that they will speed up negotiations for a trilateral free-trade agreement, which have been in process since 2012 but have yet to produce tangible results.

• China Ready to Buy More Goods from India as US Tariffs Loom

(…) “We are willing to work with the Indian side to strengthen practical cooperation in trade and other areas, and to import more Indian products that are well-suited to the Chinese market,” the ambassador to India was quoted as saying by China’s state-run Global Times, in a story posted Monday.

Bilateral trade between the neighbors stood at $101.7 billion in 2023-24, according to India’s trade ministry, with India running a significant deficit. India’s main exports include petroleum oil, iron ore, marine products and vegetable oil, amounting to $16.6 billion, according to the government figures. (…)

It is the right choice for the two nations to be partners, Xi said in a message to the president of India, adding that he is willing to deepen coordination in major international matters and jointly safeguard peace in the border areas. (…)

• EU brandishes ‘strong plan’ to retaliate against US tariffs

IN THE REAL WORLD

Tariffs on Screws Are Already Hitting Manufacturers Levies on steel and aluminum are reaching deeper in supply chains and spawning a hunt for domestic producers

(…) Unlike a similar Trump levy in 2018, the latest ones cover a wider range of imports, including the screws, nails and bolts that serve as the connective tissue in manufacturing.

That has set off a hunt to find domestic supplies of some of manufacturing’s smallest components. Tariffs on imported steel and aluminum are already driving up the costs of foreign and domestic metal used to make those components. Manufacturing executives said the U.S. doesn’t have the plants to churn out the amount of steel wire or screws and other fasteners needed to displace imports.

“The production capacity we need doesn’t exist here in the U.S.,” said Gene Simpson, president of Illinois-based fastener maker Semblex. “It’s a select group of suppliers.”

And companies that use screws and other metal parts covered by tariffs say their customers won’t tolerate price increases. Some construction contractors may delay projects until they get a handle on how to blunt the effects of import duties. (…)

Broadening the tariff to more products means steel screws imported from China carry an additional 25% tax that is layered on top of a 45% duty in effect. The enlarged tariff pushes up the cost of a 10-cent screw to 17 cents for an importer, companies said. (…)

At AlphaUSA, about half the of the materials that the Michigan-based auto-parts manufacturer purchases are fasteners. Many of them are made outside the U.S., particularly in Canada, which is now subject to the 25% duty after being exempted for years.

President Chuck Dardas said he expects it will take as long as six months to find U.S. suppliers to replace foreign producers of fasteners. He said the company’s customers often request specialized parts for assembly lines. (…)

Jim Derry, chief executive of Illinois-based Field Fastener, said his company has been receiving letters from customers who are warning that they won’t accept price increases.

“There’s just no way we’re going to sell the products without increasing the costs,” he said. “People are just going to have to pay more for the product.”

Simpson’s firm Semblex produces fasteners for automobiles, industrial lighting, farm equipment and heavy-duty commercial trucks. To make those fasteners, the company uses specialty steel wire. It imports more than half of the wire it uses, mostly from Canada.

As tariffs make imports more expensive, American steel wire producers are raising their prices at the same time. Simpson said cost increases for steel are difficult to quickly pass along to customers, especially in the automotive industry where prices are often locked in monthslong contracts. 

Annie Mecias-Murphy, president of commercial construction company JA&M Developing in Florida, said costs for steel building materials, including steel cable and concrete reinforcing bars, have increased by 5% to 8% on average in recent months. She said the cost of nails has climbed by 4%. (…)

Costs for American companies are rising faster than most everywhere in the world…

• President Trump’s plans to impose 25% tariffs on imported vehicles will hike the average price of cars by as little as $5,000 and as much as $10,000 to $15,000, Wedbush analysts say in a research note. The analysts say the tariffs will wreak havoc on auto supply chains, since even automakers that make cars in the U.S. source around half of their parts from abroad. That means it will take around three years to move 10% of the auto supply chain to the U.S., costing hundreds of billions that will be passed directly to the consumer and push down demand, the analysts say. (WSJ)
• Businesses are racing to adapt and trying to game out what’s to come, which for many means hitting the pause button on even small decisions. At DataDocks, which helps companies like PepsiCo Inc. and and Stitch Fix Inc. coordinate traffic at factory and warehouse loading docks, bookings for the month of April are down 35% from the year before. More worryingly to Nick Rakovsky, DataDocks’s founder, companies that would normally plan deliveries well into the summer months aren’t booking any beyond the first half of April. (Bloomberg)
• “This is the most dramatic shift in confidence that I can recall, except for when Covid hit,” Neel Kashkari, the Minneapolis Fed president since 2016, said last week. “It’s conceivable that the hit to confidence could have a bigger effect than the tariffs themselves.” (BB)
• Tesla executives wrote in a recent letter to US trade officials that new tariffs risked hurting not just the automaker, but overall American competitiveness, by raising the cost of manufacturing in the US. (BB)
• Trump’s victory in November made Picarazzi realize she needed to quit China entirely. During her hastily arranged trip in December, she set in motion plans to move all production to Vietnam, a country that has had a spike in interest in recent years from companies big and small searching for safe havens amid the US-China trade war. The couple, whose home is collateral for a loan to the business, are now waiting in dread to learn which nations the Trump administration will target with reciprocal tariffs in April, a list that could include a large number of countries or a smaller group of a dozen or so with which the US has the largest bilateral trade deficits. “If reciprocal tariffs happen, my whole Vietnam plan is shot,” Picarazzi says. (BB)
• Vietnam’s exports to the US jumped 18% in 2024, and the country logged the third-largest trade surplus with the US. In the two months since Trump took office, Citibin’s tariffs on its China-sourced goods soared beyond all expectations—from 7.5% to 52.5%—while duties on its Vietnam shipments have jumped from zero to 25%, because of levies on aluminum and steel that took effect on March 12. (Unlike those imposed during Trump’s first presidency, the new metal tariffs also apply to downstream products, including nuts and bolts and auto parts.) So far the company is looking at a tariff bill on five of its shipping containers arriving in New York this spring that will be $130,000 higher than it would’ve been before Trump took office. (BB)
• She and her husband have tried to game out the impact on their business from Trump’s various tariff proposals. “We have this spreadsheet we created where every column is a scenario, and I am asking, ‘How many f—ing columns? Why is another being added?’” she says. (BB)
• Picarazzi says she’s explored the possibility of bringing production back to the US but can’t make the math work. She recently sent 20 requests to factories and got back only two quotes, both of which were double her costs in Asia, she says. “I am a patriotic American,” Picarazzi says. “I would be so proud to be able to manufacture here, but no bank is going to give me a loan to start a factory.” (BB)
• Virgin Atlantic said it saw signs of a slowdown in U.S. demand for transatlantic travel. (WSJ)
• European Tourists Start Avoiding the US as ‘Unknown Territory’

French hotel group Accor SA haswarned that forward bookings from Europe to the US are down 25% this summer as travelers that feel put off by US President Donald Trump’s crackdown on immigration divert to other locations.

The company is seeing a “pretty strong deceleration” across the Atlantic, Chief Executive Officer Sébastien Bazin said on Tuesday in a Bloomberg TV interview. The drop is an acceleration from an 18-20% decline in the first 90 days of the year, he said. Travelers are deciding to visit places such as Canada, South America of Egypt instead of the US, Bazin said. (…)

On Monday, Air Canada said bookings for transborder flights between Canadian and US cities were down 10% for the April-to-September period, as Canadians respond to a brewing trade war by avoiding trips south. (…)

• Tariffs could lead to 160,000 job losses in second quarter, Conference Board of Canada says

Canada could see some 160,000 people lose their job in the second quarter, pushing unemployment up to 7.3 per cent, while the economy could shrink at an annualized rate of 5.4 per cent in the quarter, the research group said in a five-year outlook.

The economic hit would come as tariffs lead to real exports falling by a third including over 50 per cent for automotive exports.

The U.S. however will also feel the effects of its trade hostility and see its economy shrink in the second quarter, and the Conference Board is forecasting tariffs could be lifted by July 1 to start a recovery in the third quarter.

“The silver lining is that we anticipate a swift recovery, provided the tariffs remain in place for only three months,” it said. (…)

The Era of Cheap Stuff Was Already Ending. Now Comes the Tariff Threat. Goods prices are rising after decades of deflation, and Trump’s tariffs will give an added push

President Trump’s tariffs threaten to amplify a big inflation challenge: Even before the new levies landed, a long run of everyday stuff getting cheaper was coming to a close.

Most prices gradually go up most of the time. But over the 20 years before the pandemic, the basket of physical products that typical shoppers buy didn’t get even a cent more expensive.

Prices of core goods in the consumer-price index—that is, excluding food and fuel—fell 1.7% between December 2011 and December 2019. Over the same period, prices of core services like housing, healthcare and education rose 2.7% a year. The combined effect of rising service and falling goods prices was a core inflation rate of 2% a year overall.

Goods prices shot up during the pandemic, peaking in summer 2023 then declining over the following 12 months. But in September, core goods prices started rising again, by an average of 0.1% a month, including 0.2% in February. (…)

China’s entry into the World Trade Organization in 2001 kick-started a flood of exports to the U.S.; they grew more than 500% between 1998 and 2014. As a result, inflation for all imported goods was 0.6 percentage points lower a year than otherwise, a study by Monarch and Colin Hottman of the Federal Reserve found.

It will be harder to find those kinds of gains in the future. “There’s no second China waiting to be unleashed on the global economy,” Monarch said.

Energy markets brought yet more luck. Global oil prices were cheaper in 2019 than at the start of the 2010s, aided by America’s fracking boom. That helped reduce manufacturing and shipping costs for domestic and imported goods alike.

Not only are import prices no longer falling, Trump’s tariffs could make them more expensive. (…)

A month into new levies against Canada and Mexico, the cost of moving goods across North American borders is ballooning, said Breanna Leininger, vice president of U.S. operations at Canada’s PCB Global Trade Management.

“I don’t think we’ve ever seen a trade action elicit the kind of response we have now in terms of anxiety, confusion, and changing business patterns,” Leininger said.

A survey of 400 chief financial officers, released this past week by the Richmond Fed, the Atlanta Fed and Duke University, found that companies that don’t import from Canada, Mexico and China expect to raise prices 2.9% this year. But companies that rely heavily on these tariffed countries plan to raise prices 5.1%. (…)

In theory, a one-time increase in tariffs will generate a one-time increase in prices. The inflation rate rises temporarily then falls back once the tariff has been in place for a year or so.

But tariffs can add to inflation pressure in other ways. By reducing competition, trade barriers allow domestic producers to raise prices more. The gap between U.S. and world steel prices has risen sharply since January because of tariffs, for instance. With less foreign competition, domestic producers feel less pressure to adopt the latest technology or boost worker productivity, adding to cost pressures over the long term. (…)

MAKING HISTORY?

Trump’s Tariffs Set to Make History

Senator Reed Smoot and Representative Willis Hawley at the Capitol in 1929.Source: Granger Historical Picture Archive/Alamy

(…) “This is going to be much bigger than Smoot-Hawley,” says Douglas Irwin, an economic historian at Dartmouth College, who points to both the expected leap in tariff rates and the amount of trade covered as likely to eclipse what happened in 1930. “Imports are a much greater share of GDP now than they were back in the early 1930s by a long shot.” Imports of goods and services are 14% of US gross domestic product — about triple the share they accounted for in 1930.

An analysis by Bloomberg Economics found that a maximalist approach could add up to 28 percentage points to the average US tariff rate — resulting in a hit of 4% to US GDP and lifting prices by close to 2.5% over a two- to three-year period. This would be equivalent to lopping more than $1 trillion off US output, or roughly the GDP of Pennsylvania. For comparison, this would be nearly as bad as the impact of the global financial crisis — which left the economy roughly 6% smaller after 3 years than its pre-crisis trend.

Trump’s vocal concerns about value-added tax in Europe and non-tariff barriers in China mean they could face a major tariff shock, and potentially lose much of their exports to the US, Bloomberg Economics found. But because a limited share of GDP is exposed, the economic hit would likely be manageable. Canada and countries in Southeast Asia would likely feel a bigger disruption.

The Bloomberg Economics forecast assumes retaliation by other countries in the form of tariffs on US imports. It doesn’t capture indirect economic costs of the policies, such as how uncertainty about the future might lead companies to shelve investment plans and consumers to put off purchases. (…)

Ed Yardeni: Our New S&P 500 Earnings & Price Targets Under Trump’s Reign Of Tariffs

Yesterday, we reduced the odds of our Roaring 2020s base-case scenario from 65% to 55% and raised the odds of a stagflationary scenario from 35% to 45%. The latter includes the possibility of a shallow recession later this year, following a buy-in-advance shopping spree during April and May. (…)

We still expect that the Roaring 2020s scenario will prevail over the remainder of the decade, as it has so far, but after six to 12 months of heightened stagflationary risks for now. So we are lowering our outlook for S&P 500 earnings per share and our S&P 500 stock price targets for 2025 and 2026. We are still targeting 10,000 for the S&P 500 by the end of the decade. (…)

In our base-case scenario, S&P 500 revenues continue to grow solidly. The risk, of course, is that they won’t do so if Trump’s Reign of Tariffs results in stagflation.

While we aren’t lowering our outlook for revenues (yet), we are lowering our estimates for S&P earnings per share from $275 to $260 this year and from $320 to $300 next year. We are doing so to reflect the rising risks of stagflation, which would entail a growth recession and squeezed profit margins. (…)

Our earnings estimates lead us to forecast that S&P 500 forward earnings per share will be $300 at the end of this year and $350 at the end of 2026.

We are projecting a forward P/E range of 17-20 for this year and next year. The top of the range reflects our base-case scenario remaining intact even this year, while the bottom of the range is more consistent with the risks that could thwart that. If a recession occurs, the forward P/E would be lower than 17.

Our S&P 500 stock price targets are simply equal to our estimates of forward earnings times forward P/Es. So we are currently targeting S&P 500 ranges of 5100-6000 this year and 5950-7000 next year. In our base-case, the S&P 500 would end the year at 6000, a small gain on a year-over-year basis and 7000 at the end of next year.

But Ed, in a recession EPS decline 10-15%, don’t they? So your 17 recession P/E could not apply to $300 EPS.

Don’t Look to the Fed for the Answer to Stagflation

(…) Until recently, the Fed’s sought-after soft landing — inflation gradually returning to its 2% target without higher unemployment — still looked plausible, even though inflation had proved stickier than anticipated and cuts in the policy rate were thus likely to be somewhat delayed.

Suddenly, though, the outlook is much worse — not because monetary policy is now too loose and aggregate demand too high, but because the administration’s threatened trade war could cause prices to spike by disrupting supply. The new threat is stagflation, and the Fed isn’t equipped to handle it.

The remedy for too much demand is tighter monetary policy. That’s the calculation that preoccupies the central bank. But there’s no monetary-policy remedy for inflation induced by a supply-side shock.

If the administration persists with its actual and threatened tariffs, it will deliver exactly that, raising the cost of producers’ inputs, directly adding to consumer prices, and leading workers and investors to expect higher inflation to come. When a central bank responds to supply-side inflation by raising rates, the result is lower output and less-than-full employment.

In short, using monetary policy to fight stagflation is enormously costly. And in such circumstances, the Fed’s dual mandate — stable prices and maximum employment — is simply unachievable. (…)

But Mr. Powell said 2 weeks ago that given a difficult choice, he would favor the economy over inflation.

The Bank of Canada said exactly the opposite.