Core Summary

  • S&P Global released data on March 24 showing that U.S. manufacturing slowed this month, with business expectations falling to the second-lowest level since October 2022. Companies widely cited tariffs and other policy changes by the Trump administration, with growing concerns about the outlook for customer demand.
  • The S&P Global Manufacturing Purchasing Managers' Index (PMI) fell to 49.8 in March from 52.7 in February, a three-month low. A reading below 50 indicates contraction in the sector. Another index showed that while services growth hit a three-month high (53.5), expectations for the sector's future declined for the third consecutive month.
  • Chris Williamson, Chief Business Economist at S&P Global, said in a statement that business confidence "has darkened, deteriorating further from the optimism seen at the start of the year, to become one of the gloomiest readings for nearly three years." He noted that corporate executives most frequently cited the impact of tariffs and federal spending cuts.

In-Depth Analysis

With manufacturing cooling, S&P Global forecasts that the U.S. economy may grow at an annualized rate of only 1.5% in the first quarter, down from 2.3% in the fourth quarter of last year. Recently, economists from multiple private and public institutions have lowered their 2025 growth forecasts.

Economists at Bank of America expect GDP to grow by 1.5% in the first half of the year, down from a previous forecast of 2.5%. Candace Browning, Head of Global Research at BofA, noted in a report to clients last Friday (March 21) that business capital expenditure "is being damaged by the lack of clarity on tariffs, while aggressive tariff implementation, weak January consumer data, and DOGE cuts are also dragging on GDP growth in the first half of 2025."

The Federal Reserve on Wednesday (March 19) lowered its 2025 growth forecast to 1.7% from 2.1% in December, with policymakers citing "increased uncertainty about the economic outlook." The Atlanta Fed forecast last week that first-quarter GDP could contract at an annualized rate of 1.8%; the regional bank had predicted a 1.6% contraction for the first quarter on March 7.

Atlanta Fed President Raphael Bostic echoed policymakers on Monday (March 24), saying the economic outlook is unusually unclear. In an interview with Bloomberg Television, he said: "What we're hearing, and what I'm hearing, is that we don't really know where the economy is going. Business leaders don't know, households don't know, and local policymakers don't know." He added: "People are receiving information based on what's happening." Bostic noted that expectations of rising price pressures in the coming months are strengthening, and he expects policymakers will not return inflation to the 2% target until early 2027. "I think inflation will be very volatile and will not move toward the 2% target in a dramatic and clear way," he said.

S&P Global said price inflation for both goods and services accelerated in March to the fastest pace in 23 months, with manufacturing cost growth hitting a 31-month high and services cost growth an 18-month high. "Cost increases are first attributed to tariffs, but higher employee costs are also widely reported," S&P Global said.

Bostic believes policymakers may need to delay interest rate cuts beyond current projections. He expects the Fed to cut the federal funds rate only once this year. In contrast, the median forecast released by Fed officials last week suggested two 25-basis-point cuts in 2025. Fed Chair Jerome Powell said Wednesday (March 19) after the two-day policy meeting that the central bank is in no hurry to lower the benchmark rate.