Dive Brief:

• U.S. manufacturing slumped in May for the third consecutive month, the Institute for Supply Management said Monday, as the Trump administration pushed on with its plan to revive the country’s manufacturing sector by imposing the highest tariffs on imports in decades.
• The ISM’s measures of imports and new orders fell amid haggling over who will pay import levies, and inventories of raw materials and other goods plunged as manufacturers drew down existing stock rather than buy higher-priced items made abroad, ISM said, describing components of its purchasing managers’ index of manufacturing activity.
• “The pull forward of materials by companies to minimize the financial impacts of tariffs is largely completed, Susan Spence, chair of the ISM Manufacturing Business Survey Committee, said in a statement. “Overall, new orders continue to slow, as which party will pay for potential tariff costs is still the prime topic of negotiations between buyers and sellers.”

Dive Insight:

Outside of manufacturing, the U.S. economy has shown signs of weathering the two-month-long trade war despite a slump in confidence among businesses and consumers in recent months.

Gross domestic product will probably expand at an annual basis of 4.6% during the second quarter, the Federal Reserve Bank of Atlanta said Monday.

GDP shrank 0.2% during the first quarter as companies rushed to stockpile imports before President Donald Trump in early April imposed baseline tariffs of at least 10% on virtually every U.S. trade partner.

“Economic policy uncertainty among businesses is very elevated, and this has affected measures of sentiment and confidence for consumers and businesses, which fell to historically low levels in April,” Fed Governor Christopher Waller said in a speech Sunday.

Yet the “resilient” U.S. labor market will probably continue to support consumer spending, Waller said.

“In addition, my business contacts have told me that, because of tariff uncertainty, their investment plans are currently on hold but are not canceled,” Waller said. “So we may see a slowdown in investment in the near term but a jump back up later this year.”

The ISM results paint a gloomy landscape, at least for now. The ISM manufacturing index inched down 0.2 percentage point in May to 48.5, with a reading less than 50 marking a contraction.

Paper products, printing, wood and four other industries reported a pullback, while petroleum, nonmetallic minerals, and plastics and rubber noted an expansion.

Survey respondents from several industries blamed tariffs for the grim outlook, citing disruptions to supply chains, the prospect of empty store shelves and a reluctance among importers and buyers to absorb the cost of levies, according to ISM.

Tariffs enacted by Trump, along with government spending cuts, “are raising hell with businesses,” according to an executive with a computer and electronic products company quoted by ISM. “No one is willing to take on inventory risk.”

The murky outlook has cast doubt on expected profit levels and slowed execution of business plans, ISM respondents said.

“Uncertainty due to the recent tariffs continues to weigh on profitability and service,” a survey respondent from a paper products company told ISM. “An unresolved [trade deal with] China will result in empty shelves at retail for many do-it-yourself and professional goods.”