The U.S. government reported that last month manufacturing contracted. This is the third month in a row. Furthermore, suppliers have a delivery input time not seen in around three years. This is a warning to consumers that a goods shortage may unfold.
The Institute for Supply Management (ISM) survey for the manufacturing PMI came in at 48.5. When the PMI reading is below 50, it indicates a manufacturing sector contraction. Some of the biggest manufacturing names to watch in the U.S. include Trane Technologies (TT), Masco (MAS), Magna (MGA), 3M (MMM), Applied Materials (AMAT), and Illinois Tool Works (ITW). YTD, ITW stock is trading in a range of between $225 - $260. It closed at $242.65.
Investors should brace for suppliers and manufacturers to face profit margin pressures in the current quarter. Companies sold their inventory amid the announced tariffs. They did not need to raise the prices at the time. However, companies like Walmart (WMT) plan to hike prices to pass most, if not all, tariff costs to their customers.
Home Depot (HD) does not import as many goods, so it may absorb most of the tariff-related costs.
Economic Contraction Ahead
The downtrend in the ISM data suggests that manufacturing activity will continue to weaken. Businesses are not likely to commit to large orders in the medium term. Tariff rates could change at any time, especially after the tariff pause ends. Should the White House cut tariff rates below initial levels, that might spur manufacturing activities.
