Manufacturing likely continued to expand for the third month in a row in March, despite emerging headwinds from the Iran war. 

Bloomberg estimates for the headline diffusion index averaged out at 52.4, matching February’s reading. Any number above 50 indicates an industry in expansion.

The sector is enjoying a period of growth after years of contraction. January and February’s reports indicated high demand in the form of backlogs of new orders and low customer inventories, pointing to continued expansion in the near-future. The sector has benefited from an economy that remains strong overall despite uncertainty, thanks to the AI boom and resilient consumer spending levels. But the war in Iran has led to rising oil prices and disruptions in the global supply chain, which could exacerbate already-soaring prices.

Here are five things to look out for in tomorrow’s report.

1. Expect a high reading on the price index

February’s prices index was already surprisingly high: the index leaped over 11 points in one month to 70.5, its highest score since inflation peaked in June 2022. But that was before the war started, so don’t be surprised if things start to look even worse. 

Oil prices have surged, which has rippled across supply chains and impacted other commodities. It probably also led to rising freight costs for manufacturers as gas prices climbed. 

“Manufacturing is incredibly energy intensive. So when energy prices go up, it affects everybody’s margins,” FHN Chief Economist Chris Low said. 

Aluminum prices, already a concern due to tariffs, have risen to four-year highs due to disruptions in the strait of Hormuz and attacks on smelters in the region. And helium, a crucial component in semiconductor manufacturing, has also been impacted. 

2. Delayed delivery of inputs

A blocked strait of Hormuz means delays throughout the entire supply chain. Across shipping networks, suppliers have been impacted by congestion and have had to reroute their vessels. The war has also disrupted air cargo, with flight cancellations and reroutes widespread. 

February’s report already showed supplier performance slowing for the third month in a row, with 14% of respondents noting delays in deliveries. The responses for March will show the extent to which wartime logistics disruptions are already hitting manufacturers. 

3. Wartime winners may impact the score 

The war is bad news for much of the economy, but there are winners in every situation: activity has ramped up this month among defense manufacturers, with top companies promising earlier in the month to “quadruple” their weapons production. 

Domestic petroleum producers, who reported overall contraction last month, could be among the winners as well. The sector has been reluctant to expand production amidst uncertainty over how long overall oil supply will be strained, but they are bringing in more revenue for the moment. 

“What I’m expecting is sort of a generalized slowdown — except for the sectors that benefit,” Low said of the war’s impact on manufacturers. Analysts will be watching for how that divergence factors into Wednesday’s numbers. 

4. A bounceback from bad weather

January and February’s numbers might’ve been higher if not for the cold snaps and severe winter storms that struck the US. This weather may have slowed down production through sudden disruptions in transportation, employees facing difficulty getting to work and more — particularly in the south, where infrastructure to deal with snow is lacking. Now that the weather has evened out, economists will be watching for a rebound in output. 

5. Employment may tick up

With growing activity in the sector, a boost in hiring is possible. 

The employment index has only risen above 50, indicating more hiring than firing, twice in the past 30 months. February’s report posted continued reduction in payroll, but at the slowest rate in over a year at just 0.2 points below 50. 

Low said he wouldn’t be surprised if that number finally crossed over, given the increases in orders since the start of the year.

“We’re not looking for anything mind-blowing, but we could see a reading at 50.2, 50.3, something like that,” he said.