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US manufacturers reported steep declines in new orders and employment in February, fuelling fears that the economy is losing momentum as growth expectations also fell sharply.
The ISM Manufacturing purchasing managers’ index on Monday dropped to 50.3 in February from 50.9 the previous month, leaving it just above contraction territory, while secondary indices pointed to a sharp fall in new orders from 55.1 to 48.6.
The Federal Reserve Bank of Atlanta’s running estimate of US GDP growth, also published on Monday, pointed to a 2.8 per cent fall in the first quarter, a much steeper decline than the 1.5 per cent drop it had suggested on Friday.
The figures come amid growing concerns over the impact that US President Donald Trump’s aggressive trade policies will have on the US economy, as corporations weigh the prospect of steep tariffs on the country’s biggest partners.
On Monday, Trump confirmed that he would press ahead with his plan to impose 25 per cent tariffs on Mexico and Canada from Tuesday, despite a suggestion by his commerce secretary Howard Lutnick the previous day that the extent and timing of the levies was still to be finalised.
Economists said uncertainty over the tariffs had been weighing on confidence, adding that a sharp jump in a gauge of prices paid in the ISM report pointed to rising concerns about the inflationary impact of the levies.
“Several sectors are seeing orders dry up amid elevated uncertainty around trade policy,” said Oliver Allen, senior US economist at Pantheon Macroeconomics.
“At least some of the earlier increase in the ISM manufacturing index from October to January reflected manufacturers hurrying to complete orders before tariffs are applied — a rush that now seems to be petering out,” he added.
On Monday, the blue-chip S&P 500 share index closed 1.8 per cent lower after its worst session of the year, driven by Trump’s tariff announcement. The tech-heavy Nasdaq Composite fell 2.6 per cent.
The first-quarter growth rate figure from the Atlanta Fed would mark a shift after the US economy grew at an annualised rate of 2.3 per cent in the fourth quarter, though this was a weaker-than-expected end to a year propped up by a resilient American consumer.
The sharp drop in the GDPNow indicator was influenced by poor trade data, weak construction figures and the lacklustre ISM reading.
Economists at Goldman Sachs were more optimistic on GDP, however, leaving their tracking estimate for the first quarter unchanged at an annualised growth rate of 1.6 per cent.
Jack Kleinhenz, chief economist at the National Retail Federation, said the US economy had entered 2025 with a “fair amount of momentum”.
But he added that the picture was becoming less clear, as a result of “cross-currents” including immigration restrictions, tariffs and deregulation.
“Although recent economic data remains strong, we are concerned about the downside risks,” he said.
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