The Shrinking of U.S. Manufacturing Warns of the Future: What is the Impact on Japan?

What the Contraction of U.S. Manufacturing Indicates About Economic Changes: Impact on Japanese Companies

1. Changes in U.S. Manufacturing: Three Consecutive Months of Contraction

In May 2025, ominous signs are emerging in American manufacturing. The Manufacturing PMI (Purchasing Managers' Index) released by the Institute for Supply Management (ISM) was 48.5, falling below the threshold of 50 for three consecutive months. This indicates a contraction in manufacturing activity.

The PMI is regarded as a leading economic indicator, and when it falls below 50, it suggests a decrease in corporate orders and a cooling economy. The current results imply a slowdown in the overall U.S. economy.

2. Trends of Notable Companies: Impact on Stock Prices

The contraction in manufacturing has drawn attention to several major companies.

• 3M (MMM)

• Illinois Tool Works (ITW)

• Applied Materials (AMAT)

• Trane Technologies (TT)

Among them, ITW's stock price has been fluctuating between $225 and $260 since the beginning of the year, with the latest closing price at $242.65. While there is stability, concerns remain about future performance depending on the overall outlook for manufacturing.

3. Impact of Tariffs: The Wave of Price Pass-Through

Recently, tariffs on imports from countries like China have once again come into focus in the U.S. As a result, companies are unable to fully absorb the costs internally, leading to a widespread move to pass these costs onto prices.

For example,

• Walmart plans to raise product prices.

• Home Depot has a low dependency on imports and is responding by absorbing costs.

Such moves are directly linked to consumers' lives, raising the possibility of inflationary pressures reigniting.

4. Concerns about the Future of the U.S. Economy

In addition to the contraction in manufacturing, there are other concerns such as the following:

• Sluggish New Orders

• Delayed Deliveries (Supply Chain Issues)

• Impact of Interest Rate Hikes

• Cooling Consumer Sentiment

These factors are interrelated, intensifying concerns about a future economic downturn. While government measures such as tariff reductions could lead to temporary recovery, optimism is not warranted.

5. Impact on Japanese Companies?

The slowdown in U.S. manufacturing will also affect Japanese export industries.

Particularly, industries with significant transactions with the U.S. need to be cautious, such as:

• Automotive Parts Manufacturers

• Electronic Component Suppliers

• Machine Tools and Precision Equipment Manufacturers

Additionally, a stronger yen poses a risk of deteriorating export profitability. Japanese companies need to respond flexibly by exploring alternative markets and reviewing supply chains.

6. Key Points to Watch

• Next PMI Release (Check U.S. Economic Calendar)

• Federal Reserve (FRB) Policy Trends

• Changes in U.S.-China Trade Policies

• Consumer Trends and Retail Sales

Summary

The contraction of U.S. manufacturing is not a "distant fire" for Japan. Economic waves are globally interconnected, and changes in the U.S. economy could impact Japanese business activities and investment decisions.For companies with a high dependency on exports, it is necessary to respond sensitively to such information.

It is important to continuously monitor the trends in the US economy and take measures as a Japanese company.

Reference Article