U.S. Manufacturing Contracts for Eighth Month as Tariffs Impact Industrial Sector

This analysis is based on the MarketWatch report [1] published on November 3, 2025, which highlighted ongoing manufacturing contraction attributed to tariff policies.

U.S. manufacturing has now contracted for eight consecutive months, with the ISM Manufacturing PMI declining to 48.7 in October from 49.1 in September, missing economists’ consensus forecast of 49.5 [1][2]. The contraction is being directly attributed to ongoing Trump administration tariffs, with manufacturers reporting that “business continues to be severely depressed” due to these trade policies [1].

The tariff impact is manifesting through measurable supply chain disruptions, as the supplier deliveries index increased to 54.2 from 52.6 in September, indicating slower deliveries to factories [1]. According to the Institute for Supply Management (ISM), tariffs are “constraining production at factories” by disrupting supply chains and lengthening supplier delivery times [1].

The manufacturing sector showed immediate weakness following the report, with the Industrial Select Sector SPDR Fund (XLI) declining 1.06% to $154.00 on November 3rd [0]. The Basic Materials sector performed worst with a 2.19% decline, while the Industrials sector fell 0.76% [0].

However, broader market indices demonstrated resilience, with the S&P 500 gaining 2.16% and NASDAQ jumping 4.56% over the past 30 days [0]. This divergence suggests that manufacturing weakness is being viewed as sector-specific rather than economy-wide.

Notably, some major industrial companies have shown resilience despite sector headwinds. Caterpillar (CAT) has delivered strong performance with +58.28% YTD gains, though analysts maintain a consensus target of $540.00 (-5.2% from current) [0]. GE Aerospace (GE) performed even better with +82.35% YTD performance, supported by robust aerospace demand [0].

The manufacturing sub-indexes reveal concerning trends:

• New Orders
  : Remained depressed at 49.4, up slightly from 48.9 but still in contraction territory [1]
• Production
  : Weak after briefly rebounding in September [1]
• Employment
  : Continued weakness with “layoffs and not filling open positions” as main strategies [1]
• Prices Paid
  : Eased to 58.0 from 61.9, though still indicating significant inflationary pressures [1]

The manufacturing contraction occurs against a complex backdrop including a month-long government shutdown that is complicating economic data collection and potentially dampening consumer spending [1]. Despite the manufacturing weakness, the PMI remains above 42.3, which ISM indicates is consistent with overall economic expansion [1].

Consumer spending is currently being driven primarily by high-income households benefiting from stock market gains, suggesting uneven economic impacts across different demographic segments [1].

The performance divergence between manufacturing weakness and broader market strength suggests ongoing sector rotation. Companies with strong international positioning or specific secular growth drivers appear better insulated from tariff impacts, as evidenced by the outperformance of aerospace-focused companies.

The analysis reveals several risk factors that warrant attention:

1. Employment Risk
   : The ISM specifically noted ongoing layoffs and position reductions as primary workforce management strategies [1], indicating potential broader labor market impacts.

2. Inflationary Pressure
   : While input price growth moderated from 61.9 to 58.0, this reading still indicates significant cost pressures that could feed through to consumer prices [1].

3. Supply Chain Fragility
   : Lengthening delivery times suggest ongoing supply chain fragility that could impact other sectors beyond manufacturing [1].

4. Policy Uncertainty
   : The U.S. Supreme Court will hear arguments on Trump tariff legality on Wednesday, November 5th [1], creating potential for significant market volatility.

Decision-makers should track several key indicators:

• Supreme Court Decision
  : November 5th arguments on tariff legality could significantly impact market expectations [1]
• New Orders Trend
  : Whether the slight improvement to 49.4 represents stabilization or continued weakness [1]
• Regional Manufacturing Data
  : For geographic patterns in the contraction
• Corporate Earnings
  : Q3 and Q4 earnings from major manufacturers for specific tariff impact disclosures

The manufacturing sector’s prolonged contraction reflects the ongoing impact of tariff policies on U.S. industrial activity. While the broader economy shows resilience, manufacturing-specific challenges include supply chain disruptions, employment weakness, and persistent cost pressures. The divergence in performance between different industrial companies suggests that factors such as international positioning and secular growth trends may provide insulation from tariff impacts. The upcoming Supreme Court hearing on tariff legality represents a key catalyst that could significantly affect market dynamics and manufacturing outlook [0][1][2].