Financial FAQs
“The manufacturing economy continues to struggle,” Susan Spence of ISM said. “It will continue to struggle” due to all the trade uncertainty.
“The administration’s tariffs alone have created supply chain disruptions rivaling that of Covid-19,” an executive at an electronics company told ISM.
The only number in the Institute of Supply Management’s (ISM) manufacturing survey that rose were prices due to a shortage of commodities—i.e., supply. Every other component of the supply managers’ survey was contracting—such as new orders, production, and employment.
Manufacturing employment had been declining since 1980; from 19,000,000 jobs to 12,765,000 jobs in April per the FRED graph out of a total 159 million jobs.
It’s the first sector of the U.S. economy that is showing stagflation—prices are up while production is stagnating. Hence the above remarks from supply managers and Susan Spence, Chair of the ISM Survey.
The services index of the Institute for Supply Management also contracted for the first time in a year. It fell to 49.9% in May from 51.6% in April, the ISM said Wednesday. Any number below 50% signals contraction.
Economic activity in the services sector contracted in May, the first time since June 2024, say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®. The Services PMI® indicated slight contraction at 49.9 percent, below the 50-percent breakeven point for only the fourth time in 60 months since recovery from the coronavirus pandemic-induced recession began in June 2020.
The Labor Department’s JOLTS report shows that the service sector is still adding jobs. Job openings rose in April for white-collar, retail, healthcare, and entertainment and recreation roles. But job listings fell at hotels and restaurants, whose business has been hurt by a decline in tourism. Some foreign visitors have put off trips to the U.S. because of the trade wars and other White House policies.
Another disheartening jobs report came out today. ADP, a private payroll processor, reported that privately run businesses created just 37,000 new jobs in May — the smallest increase in more than two years — as the most damaging global trade wars since the Great Depression spurred many firms to put a pause on hiring.
The real problem is that employers won’t begin to hire again until the trade wars are resolved, and President Trump says he isn’t letting up on the tariff wars because it will create more manufacturing jobs. But that will take years, and automation has replaced most of the manufacturing jobs (which no longer pay as well) before we see any signs of a manufacturing resurgence.
Economists such as Paul Krugman, who won a Nobel Prize for his pioneering research in foreign trade, remarking on the sudden 50 percent increase in steel tariffs, believes the damage to the U.S. Economy from such draconian tariff rates (i.e., import taxes) is already done.
So steel tariffs don’t make any policy sense. But then neither does anything else in Trump’s trade war — and the nonsensical nature of the whole enterprise is why I don’t think he’ll find an off-ramp. After all, it’s obvious that the increased steel tariff wasn’t a considered policy, it was a temper tantrum after the Court of International Trade ruled against his other tariffs.
Is the contraction of both the service and manufacturing sectors the first sign that the U.S. economy is already in recession? This Friday’s ‘official’ U.S. Labor Department unemployment report will tell us more.
Harlan Green © 2025
Follow Harlan on Twitter: https://twitter.com/HarlanGreen
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