Manufacturing activity in the United States showed signs of recovery in March. However, influenced by the Middle East conflict, factory raw material purchase prices surged to their highest level in nearly four years, and supplier delivery times lengthened.

The Institute for Supply Management reported on Wednesday that the US Manufacturing Purchasing Managers' Index (PMI) rose slightly to 52.7 in March from 52.4 in February, marking the highest reading since August 2022. The index has remained above the 50 threshold, which separates expansion from contraction, for three consecutive months, indicating the sector is in an expansionary phase. Economists surveyed had anticipated the index would hold steady around 52.5.

Part of the increase in the index may be attributed to longer supplier delivery times—a phenomenon often associated with strong economic conditions and rising customer demand. However, the recent slowdown in deliveries primarily reflects supply chain disruptions.

Restrictions on shipping through the Strait of Hormuz, resulting from military actions involving the US, Israel, and Iran, have contributed to the issues. Since the conflict escalated in late February, international crude oil prices have increased by more than 50%, and the transport of fertilizers and aluminum materials has also been affected.

Data from the Institute for Supply Management showed the Supplier Deliveries Index climbed to 58.9 in March from 55.1 in February. A reading above 50 indicates slower deliveries.

Driven by supply chain disruptions, factories faced higher raw material costs last month. The Prices Index jumped to 78.3 from 70.5 in February, reaching its highest level since June 2022, coinciding with a significant rise in industrial producer prices.

Economists predict the conflict will fuel inflation this year, with some anticipating the Federal Reserve may hold interest rates steady throughout the year. The US central bank maintained its benchmark overnight interest rate in the 3.50% to 3.75% range last month. Accompanying projections indicated officials had revised their inflation expectations upwards and forecast only one rate cut by 2026.

Despite the rise in the manufacturing PMI last month, tariff policies continue to pose challenges for the sector, which accounts for 10.1% of the US economy. Previous import tariffs advocated by former President Trump were overturned by the Supreme Court, stymieing his manufacturing revival agenda, though he has since proposed broader global tariffs.

The forward-looking New Orders sub-index from the Institute for Supply Management declined to 53.5 in March from 55.8 in February, while the growth in order backlogs also slowed. Factory employment levels remained weak, with the sector having lost 100,000 jobs since January 2025.