02-04-2025
March 2025 Manufacturing Contracted But Material Handling Expanded
A robot picks up a tote containing product during a public tour of an Amazon Robotics fulfillment ... More center. Photo by Paul Hennessy/NurPhoto via Getty Images.
U.S. manufacturing contracted in March 2025, while material handling improved and expanded. The Institute for Supply Management manufacturing index contracted in March 2025 for the first time since December 2024.
Meanwhile, the MHI Business Activity Index by Prestige Economics reflected expansions across almost all categories, including business activity, new orders, future new orders, shipments, unfilled orders, exports, and capacity utilization. Only material handling inventories fell in March.
Over the next two years, a drop in interest rates and a likely accompanying decline in the dollar have the potential to support material handling and manufacturing. However, tariffs and trade policy uncertainty have added significant downside risks to the growth outlook.
The ISM Manufacturing Index fell to 49 in March 2025, contracting for the first time since December ... More 2024.
U.S. manufacturing contracted in March as the Institute for Supply Management manufacturing index fell to 49 from 50.3 in February. The March reading was back below the breakeven of 50 for the first time since October 2022.
This series is a key leading indicator of U.S. economic growth, and its March weakness does not bode well for U.S. Q1 2025 GDP, especially with recently soft consumer confidence and elevated tariff risks. Based on data available through April 1, the Atlanta Fed's GDPNow reflects a likely Q1 2025 U.S. growth rate of -3.7%.
The Q1 2025 Atlanta Fed GDPNow reflects growth likely to be -3.7% based on data available as of ... More April 1, 2025.
Material handling data was strong and improved in the Apr. 1, 2025, release of the March 2025 MHI Business Activity Index by Prestige Economics — known in shorthand as the MHI BAI. This is the most real-time economic data available for the U.S. material handling industry.
The material handling industry is comprised of manufacturers, technology providers, and other suppliers who provide the hardware and software to move goods through the U.S. and global supply chains. Data in the MHI BAI comes from leading executive leadership members of MHI, which is the largest material handling, logistics, and supply chain association in the United States.
The MHI BAI also bodes well for Q1 2025 GDP since January and February data collected from MHI executives reflected expansions across most categories. The March MHI BAI was a solid report, and it strengthened from the February 2025 MHI BAI report.
Shipments have been consistently expanding over the past few years in MHI BAI reports. In March, MHI BAI shipments expanded, as 71% of respondents reported expansions in shipments, and only 29% reported contractions.
MHI BAI series readings above 50 indicate that a majority of the respondents reported increased monthly activity, while readings below 50 indicate a majority of respondents noted decreased activity.
New orders were also positive and expanded, as 58% of respondents reported monthly expansions in new orders. This reading was above the breakeven of 50, and it reflected an acceleration from the expansion in February. Despite expansions over the latest six consecutive months through March, new orders have been mixed over the past two years, reflecting expansions in 15 of the past 24 months. Meanwhile, shipments have contracted only five times in the past 24 months.
Unlike shipments, unfilled orders and inventories have been persistently weak.
Unfilled orders expanded in March, as 58% of respondents reported monthly expansions and 42% reported contractions. Persistently weak, unfilled orders have only expanded eight times in the past 24 months.
Inventories contracted in March, as only 45% of respondents noted monthly expansions, but 55% noted contractions. March reflected the 18th consecutive monthly contraction in inventories, which expanded just twice in the past 24 months.
The trend over the past two years of the relative strength of shipments compared to the weakness of new orders, unfilled orders, and inventories appears to indicate that companies have been burning off their backlogs and running down work-in-progress inventories.
The March 2025 MHI BAI shipments and new orders expanded.
MHI BAI future new orders have been strong and were at 92% in March. This percentage shows that almost all respondents expect future new orders will be higher in 12 months. Although this monthly series accelerated modestly in March, the three-month average for the future new orders series remained unchanged at 92%, and the six-month average decelerated to 92%.
These expansion percentages are exceptionally high and bode well for the future of material handling new orders in the year ahead. Beyond the strength in future new orders, there is additional upside potential for material handling activity in the year ahead.
Interest rates have started falling and are likely to fall further through the end of 2026, according to recent Federal Reserve member forecasts. A drop in U.S. interest rates and a likely accompanying drop in the dollar have the potential to support material handling and manufacturing in the next two years.
The MHI BAI future new orders series accelerated in March to 92% from 90% in February. This implies ... More that the vast majority of respondents expect future new orders will be higher in 12 months.
Tariff risks have significantly dampened the outlook for U.S. growth and manufacturing, although material handling data remain positive. However, trade policy uncertainty and tariff risks could also dampen the outlook for material handling.
Both the ISM and MHI BAI data should be watched closely because growth dynamics for material handling and manufacturing offer a glimpse into future overall U.S. consumption and aggregate economic demand.
