U.S. Manufacturing Activity Surges Amid Middle East Conflict

In March 2026, U.S. manufacturing activity accelerated to its fastest pace since 2022, despite ongoing geopolitical tensions and rising input costs due to the conflict in the Middle East. The Institute for Supply Management’s Manufacturing Purchasing Managers' Index (PMI) rose to 52.7, up from 52.4 in February, marking three consecutive months of expansion. Similarly, the S&P Global U.S. Manufacturing PMI increased to 52.3 from 51.6, indicating sustained growth driven primarily by domestic demand. Notably, 13 of the 16 manufacturing industries tracked by ISM reported growth, with significant contributions from sectors such as transportation equipment, computer and electronic products, machinery, and chemical products.

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The expansion in manufacturing comes against a backdrop of rising costs attributed to the ongoing war in the Middle East, particularly the conflict involving Iran. The ISM’s Prices Index surged to 78.3, its highest since June 2022, as manufacturers faced increased feedstock costs, shipping delays, and soaring energy prices. Approximately 40% of ISM panelists cited the Middle East conflict as a significant concern, while only 20% mentioned tariffs. Despite these pressures, both manufacturers and policymakers anticipate that the cost increases will be temporary.

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While manufacturing activity is on the rise, employment in the sector remains stagnant. The ISM’s Employment Index contracted for the 30th consecutive month, indicating ongoing challenges in workforce growth. Federal Reserve Chair Jerome Powell noted that energy shocks typically have short-lived effects, suggesting a cautious approach to monetary policy in response to the current economic climate. Economists at the Federal Reserve Bank of Dallas have indicated that the break-even rate of job growth necessary to maintain stable unemployment is now negative.

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Critics of the current administration's economic policies argue that the ongoing conflict and rising costs are exacerbated by inadequate immigration policies that limit labor supply. The lack of job growth in manufacturing has raised concerns about the long-term sustainability of the sector, particularly as companies navigate the dual challenges of rising costs and a shrinking workforce.

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• “encouraging resilience for US manufacturing in the face of the outbreak of war in the Middle East,” — Chris Williamson, Chief Business Economist, S&P Global Market Intelligence

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• “Energy shocks have tended to come and go pretty quickly,” — Jerome Powell, Federal Reserve Chair

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As the Bureau of Labor Statistics prepares to release the March jobs report, the manufacturing sector's ability to sustain growth amidst rising costs and geopolitical tensions will be closely monitored. The implications of the ongoing conflict in the Middle East on global supply chains and energy prices remain uncertain, with potential repercussions for U.S. economic stability.

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