Dive Brief:
- U.S. manufacturing slowed this month and business expectations slumped to the second lowest level since October 2022 as companies, citing tariffs and other Trump administration policy shifts, grew increasingly worried that customer demand will falter in coming months, S&P Global said Monday.
- The S&P Global flash manufacturing index fell from 52.7 last month to 49.8 in March, a three-month low, S&P Global said. A reading below 50 signals contraction. Another index showed that service industry growth hit a three-month high of 53.5 even as the sector’s expectations for the future slumped for a third consecutive month.
- Business confidence has “darkened, souring further from the buoyant mood seen at the start of the year to one of the gloomiest readings seen over the past three years,” S&P Global Chief Business Economist Chris Williamson said in a statement. Executives most frequently cited tariffs and cuts in federal spending, he said.
Dive Insight:
With manufacturing cooling, the economy will likely slow to just 1.5% annualized growth during the first quarter from a 2.3% pace during Q4, S&P Global predicted.
Economists at several private- and public-sector organizations have marked down their 2025 growth forecasts in recent weeks.
Gross domestic product will probably expand 1.5% during the first half of the year, according to Bank of America economists, a markdown from their 2.5% growth forecast.
Business capital expenditure “is suffering from a lack of clarity on tariffs while aggressive tariff implementation, consumer weakness in January and Department of Government Efficiency cuts also detract” from first half 2025 GDP growth, Candace Browning, head of global research at Bank of America, said Friday in a note to clients.
The Federal Reserve on Wednesday downgraded its forecast for economic growth in 2025 to 1.7% from 2.1% in December, with policymakers noting that “uncertainty around the economic outlook has increased.”
The Atlanta Fed last week forecast that gross domestic product will likely shrink at a 1.8% annual rate during the first quarter. The regional bank on March 7 predicted a 1.6% contraction during Q1.
Atlanta Fed President Raphael Bostic on Monday echoed the view of policymakers that the outlook is unusually murky.
“What we've heard, and what I've heard, is that we don't really know where the economy is going to go,” Bostic said in a Bloomberg Television interview. “Business leaders don't know, families don't know and local policymakers don't know either.”
“People are taking on board information as it occurs,” he said, noting an increasing expectation that price pressures will rise in coming months. Bostic predicted that policymakers will not restore inflation to their 2% goal until early 2027.
“I think we're going to see inflation be very bumpy and not move dramatically and in a clear way to the 2% target,” he said.
Inflation in both goods and services prices accelerated in March to the fastest pace in 23 months, hitting a 31-month high in manufacturing and an 18-month high in services, S&P Global said.
“Higher costs were first and foremost attributed to tariffs, though increased staffing costs were also widely reported,” S&P Global said.
Policymakers may need to postpone reductions in borrowing costs beyond current forecasts, Bostic said. He predicted that the central bank will trim the federal funds rate just once this year.
Fed officials, in their median estimate released last week, forecast two quarter-point cuts in the main rate during 2025. Fed Chair Jerome Powell said on Wednesday — after a two-day policy meeting — that the central bank is in no hurry to reduce the benchmark rate.
