02:21 PM EDT, 03/31/2025 (MT Newswires) -- The US manufacturing sector's contraction unexpectedly deepened this month as uncertainty reached its highest level since fall 2022, according to the Federal Reserve Bank of Dallas.

The general business activity index declined to a reading of minus 16.3 from minus 8.3 in February, the Dallas Fed's manufacturing outlook survey showed Monday. Analysts surveyed in a Bloomberg poll were looking for an improvement to minus 5.

The uncertainty index pushed up seven points to 36.2, while the company outlook measure retreated to an eight-month low.

"Demand levels and domestic policy uncertainty were the top two outlook concerns cited by business executives," said Emily Kerr, senior business economist at the Dallas Fed. "When asked about changes in government spending, 36% of respondents expect a negative impact on their business this year, and 10% expect a positive impact."

The Department of Government Efficiency, created by President Donald Trump and being led by Elon Musk, is spearheading federal spending cuts and a plan to pare down the government workforce.

Raw materials price pressures edged higher in March amid tariffs and uncertainty around trade policy, said Kerr.

Trump is expected to announce reciprocal tariffs this week. Trump told reporters on Sunday that the expected tariffs will target "all countries," CNBC reported.

Six months out, expectations for general business activity tumbled to minus 6.6, its first negative reading since May.

The production index, which the Fed branch calls a key measure of state manufacturing conditions, climbed to 6 in March from minus 9.1 the month prior. New orders improved to nearly zero, suggesting that demand trends were similar sequentially, while shipments logged gains, the regional Fed's survey showed.

Production over the next six months is expected to fall to 27.6 from a 28.3 reading projected in February, according to the Fed branch's report. The forward-looking indicator for new orders rose to 28.6 from 25.8, while future shipments fell to 21.7 from 32.1.