The U.S. manufacturing sector shrank for the second straight month in April, driven by weakening demand and rising price pressures linked to tariffs, according to the latest data from the Institute for Supply Management (ISM).

The ISM Manufacturing Purchasing Managers’ Index (PMI) fell from 49% in March to 48.7%, its third consecutive monthly decline. While surpassing the economist consensus of 48%, the outcome remains below the neutral 50% threshold, indicating another month of contraction.

“Demand and output weakened while input strengthened further, conditions that are not considered positive for economic growth,” Timothy R. Fiore, chair of the ISM Manufacturing Business Survey Committee, stated.

He added that destaffing continued as firms grappled with uncertainty and rising costs.

Fiore cited growing backlogs and supplier delivery delays, noting that "prices growth accelerated slightly due to tariffs," which may have pushed firms to frontload purchases and accumulate inventories.

Manufacturing Price Pressures Hit 34-Month High

The New Orders Index rose modestly to 47.2%, up 2 points from March's 45.2%, but remained in contraction territory for the third straight month.

Production deteriorated sharply, with the Production Index plunging to 44% from 48.3% in March—a drop of 4.3 points and a clear sign of weakening factory activity.

The Backlog of Orders Index was 43.7%, down 0.8 percentage point from the previous reading of 44.5%.

The Employment Index registered 46.5%, up 1.8 percentage points from March's 44.7%, remaining in contraction zone.

“The Supplier Deliveries Index indicated a continued slowing of deliveries, registering 55.2%, 1.7 percentage points higher than the 53.5% recorded in March,” said Fiore.

Notably, the Prices Index rose to 69.8% in April, the highest since June 2022 and up slightly from March's 69.4%. This elevated reading underscores the resurgence of inflationary forces within the supply chain, largely tied to renewed trade barriers and tariffs.

Export activity weakened significantly, with the New Export Orders Index falling to 43.1%, a steep drop from March's 49.6%. Imports also dipped into contraction territory, registering 47.1%, down from 50.1%.

Inventory levels expanded for the second consecutive month, with the Inventories Index at 50.8%. Fiore warned that "inventory growth is not a positive sign when demand is moving in the opposite direction."

“The recent expansion is considered a temporary move to avoid tariffs, and levels will decline when such trade issues are resolved,” Fiore added.

Market Reaction: Dollar Rallies, Yields Rise

Markets reacted swiftly to the report, particularly in currency and bond markets.

The U.S. dollar strengthened, with the Invesco DB USD Index Bullish Fund ETF rising 0.5% and regaining the 100 mark, reaching two-week highs.

The 10-year Treasury yield climbed 4 basis points to 4.19%, as traders priced in the likelihood that the Federal Reserve may delay rate cuts due to persistent price pressures.

Stock markets were relatively unfazed.

The S&P 500, as tracked by the SPDR S&P 500 ETF Trust ( SPY ) , rose 0.4% to 5,615 by 10:15 a.m. ET. Gains were mirrored across the Dow Jones and Nasdaq 100, while the small-cap Russell 2000 outperformed with a 0.9% advance.

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