Treasury
The Institute for Supply Management (ISM) March manufacturing index fell to 49, below the boom-bust line of 50, with both output and employment contracting. Tariffs raised costs, leading to backlogs of new orders, slower supplier deliveries, and inventory growth. S&P Global's chief business economist noted that tariffs were the primary reason for the rise in factory input costs in March, the largest increase since mid-2022. Richmond Federal Reserve President Barkin warned that tariffs could simultaneously push up unemployment and inflation.
The Conference Board expects that inflation-adjusted U.S. first-quarter consumer spending may decline 0.2% quarter-over-quarter on an annualized basis, marking the first contraction since the pandemic. In February, the core PCE price index accelerated to 2.8% year-over-year, with tariff concerns and rising inflation expectations making consumers more cautious.
The Organization for Economic Co-operation and Development (OECD) reached an agreement in 2021 on the Pillar Two minimum tax rules, which propose a 15% global minimum tax rate for large multinational enterprises. Over 140 countries have signed the agreement, and about 40 countries have enacted implementing legislation. These rules are complex and interconnect the tax affairs of various entities within enterprises, with filings set to intensify from 2025 to 2026. Business leaders should focus on technology investment, data sources and management, and internal organizational changes to efficiently comply with the new obligations.
US inflation accelerated to 2.8% in February, while consumer spending grew only 0.1%, raising stagflation concerns. Allianz Chief Economic Advisor Mohamed El-Erian noted that long-term inflation expectations have risen to a 32-year high. Fed officials have downgraded growth forecasts, with the Atlanta Fed projecting a 2.8% contraction in first-quarter GDP.
US President Trump signed an executive order on Wednesday imposing a 25% tariff on all cars manufactured outside the United States, effective April 2, with collection beginning April 3. The tariffs cover imported sedans, SUVs, crossovers, minivans, cargo vans, and light trucks, as well as some parts such as engines and transmissions. A White House fact sheet noted that parts compliant with the USMCA agreement will be temporarily exempted, but tariffs will apply by May 3 at the latest. Automakers and suppliers have expressed concerns, as Mexico and Canada account for the majority of US auto imports.
Data released by the Conference Board on March 25 shows that the US consumer expectations index for employment, personal income, and business conditions over the next six months fell sharply by 9.6 points to 65.2, the lowest level in 12 years, reflecting growing concerns over tariffs and trade policy. Meanwhile, consumer inflation expectations for the next 12 months rose to 6.2%. Federal Reserve officials and economists have both noted that trade policy is pushing up short-term inflation expectations, but long-term expectations remain relatively stable.
S&P Global data shows U.S. manufacturing activity slowed in March, with the PMI falling to 49.8 and business expectations dropping to the second-lowest level since October 2022. Tariffs and policy uncertainty have companies worried about weak demand, and while services growth hit a three-month high, expectations declined for consecutive months. Multiple institutions have lowered 2025 growth forecasts, and the Federal Reserve has also cut its economic outlook.
The Conference Board reported Thursday that its Leading Economic Index continues to point to growth headwinds, projecting U.S. economic growth will slow to 2% in 2025 from 2.8% in 2024. Meanwhile, the Federal Reserve cut its growth forecast for this year to 1.7% and held interest rates steady.
On March 19, the Federal Reserve announced it would hold interest rates steady at 4.25%-4.5%, with the dot plot indicating that two rate cuts may still occur this year. The latest economic projections raised the 2025 core PCE inflation expectation to 2.8% and lowered GDP growth to 1.7%. Powell stated that tariff policies bring high uncertainty, but the Fed does not need to act hastily and will wait for clearer data signals.
U.S. retail sales rose 0.2% month-over-month in February, below market expectations, with January data revised to a decline of 1.2%. Uncertainty over tariff policies has raised concerns about consumer spending and economic slowdown. Economists noted that uncertainty over the Trump administration's tariff policies has negatively impacted consumer and business confidence, with the Atlanta Fed downgrading its first-quarter GDP forecast to a contraction of 2.1%.