Manufacturing struggles to start 2025, and that's before any tariffs

We had another day of concerning economic news for America. Even though the Manufacturing Index from the Institute of Supply Management (ISM) showed expansion for the 2nd straight month, it was considered a disappointing. That,along with other Trumpian stpudity,caused the DOW Jones Industrial Average to give up all of its 600+ point gain from Friday.

Timothy Fiore chairs ISM's Manufacturing Business Survey Committee, and his notes are ominous.

…Demand weakened, while output stabilized and inputs, for the first time in several months, contributed to PMI® growth. Indications that demand weakened include: the (1) New Orders Index dropped into contraction territory, (2) New Export Orders Index continued expanding, but at a slower rate, (3) Backlog of Orders Index continued in contraction, but moved upward, and (4) Customers’ Inventories Index moved further into ‘too low’ territory. Output (measured by the Production and Employment indexes) was stable. Factory output marginally expanded compared to January, indicating that panelists’ companies are being cautious about ramping up output in the face of economic headwinds. The Employment Index moved back into contraction, as panelists’ companies continued to release workers. More companies cited ‘attriting down’ as the best process, with destaffing not as urgent as it was in the second half of 2024. Inputs — defined as supplier deliveries, inventories, prices and imports — revealed the first signs of supplier difficulties due to some pull-forward deliveries and discussions about who will pay for tariffs. Inventories recovered somewhat as a result.

Then you go inside the numbers for both February and for January, and it seems evident that a one-time pre-tariff bump in orders from January has gone away, and that manufacturing suppliers and businesses are raising prices even before the tariffs are put in place.

The data complements Friday’s report that told us the dollar amount of imported goods went up by nearly $35 billion in January compared to December (11.9%), including a $22 billion increase in industrial supplies and a $6 billion increase in consumer goods. That spiked the trade deficit in goods by more than 25%, and caused the Atlanta Fed to project a decline in economic growth for the first quarter of Trump Presidency 2.0. There also was a sizable increase in new orders for manufactured goods for January. But that increase was almost entirely due to a jump in nondefense aircraft and parts, and that sector also is the cause behind a large jump in unfilled orders in manufacturing. That overall increase in new orders nearly reversed monthly declines of 1.8% in December and 2.0% in November.

However, that same report has a significant 2.5% decline in new orders for motor vehicles and parts in January. It was the 4th consecutive month that new car and parts orders have gone down, and by (seasonally adjusted) dollar amounts, it's the lowest in 2 ½ years. That's a significant turnaround from the end of 2024, where cars and auto parts accounted for nearly 1/5 of the country’s GDP growth of 2.3%.

And sales of cars in America were even worse, as inflation-adjusted auto sales declined by 6% in January. It was a key reason behind a surprising 0.5% drop in inflation-adjusted consumer spending for that month, which was the other reason we saw projections of economic growth falling on Friday.

Again, these worrying numbers in January happened before tariffs were imposed. And Pras Submramanian of Yahoo Finance mentions that the price tag will be noticeable.

The Anderson Economic Group (AEG) found that vehicles like EV crossovers could have price hikes of over $12,000 depending on the vehicle if proposed tariffs of 25% go into effect on Canadian and Mexican imports. According to news reports, Trump is expected to decide on tariff levels today.

The tariffs don't just affect vehicles imported from those countries, but also parts that cross over the border many times during the production process, adding to additional tariff costs. The costs would almost all be passed on to US buyers, the study said.

Other popular vehicles, like a standard, gas-powered crossover, could see hikes of at least $3,500, while pickup trucks — a staple of working-class Americans and small business owners — could see costs jump as much as $8,000 due to the tariff effect.

Full-size SUVs could see costs rise by $9,000, and small cars could see a hike of $6,200.

With all of these imports coming into the country, and the threat of tariffs raising prices, it’s hard to see where consumer demand rebounds for these items any time in the near future. Sure, January has volatile numbers due to seasonality. But weak numbers for February and March might put things on a point of no return.

Given the huge amount of front-running of orders, imports and inventory, a lack of demand for manufactured goods should cause cutbacks in both production and jobs. And that would mean even more rough times for American manufacturing after 3 years of stagnation and/or decline in the sector, which started with the Federal Reserve raising interest rates in early 2022.