The economy may face a downturn as the supply chain begins to contract due to tariff policies and rising uncertainty, according to researchers from Florida Atlantic University and several other institutions. The latest Logistics Managers Index (LMI) for March stands at 57.1, a significant drop from 62.8 in February, marking the lowest reading since August 2024. An LMI score over 50 indicates industry expansion, while a score below 50 suggests contraction.
Steven Carnovale, Ph.D., an associate professor of supply chain management at FAU, noted that recent tariff announcements have substantially impacted global supply chains. These tariffs lead to increased material costs and greater administrative complexity. According to Carnovale, these heightened costs, combined with slowing demand and reduced warehouse utilization in the consumer-facing segment, could push the economy toward recession.
The LMI survey, which includes responses from director-level supply chain executives, assesses industry performance based on eight components: inventory levels, inventory costs, warehousing capacity, warehousing utilization, warehousing prices, transportation capacity, transportation utilization, and transportation prices. The research collaboration includes experts from Arizona State University, Colorado State University, Rutgers University, and the University of Nevada at Reno. March’s decline in the LMI can be attributed to decreases in inventory costs, warehousing prices, and transportation prices.
This drop represents the third-largest decline in the index’s history, surpassed only by significant declines following the Russian invasion of Ukraine and the COVID-19 lockdowns. As the year began, the supply chain ramped up in anticipation of new trade policies. Following the announcement of tariffs, cross-border traffic between Mexico and the United States diminished, prompting some companies to seek alternative import routes.
Retail giants like Walmart and Target are modifying their product assortments and warehouse strategies to mitigate the effects of these tariffs. Carnovale emphasized the importance of resilient and responsive supply chain management in the coming months, with a focus on agility and risk management.