Manufacturing in the central U.S. contracted this month, albeit less sharply, with price pressures on raw materials increasing as firms weigh the Trump administration's tariffs.

The Federal Reserve Bank of Kansas City said Thursday that its Tenth District manufacturing survey's composite index came in at minus 2 in March, up from minus 5 in February. The reading was minus 5 for January and December 2024 as well. A reading below zero suggests activity contracted compared with the previous month.

"Regional factory activity decreased modestly in March, driven by declines in nondurable manufacturing," said Megan Williams, associate economist and survey manager.

"Production was flat, but employment continued to decline, and nearly half of firms reported tighter profit margins in the past 12 months."

Notably, prices paid for raw materials increased this month, likely prompted by concerns over tariffs proposed or already imposed on imported products. Because finished product prices ticked down, profit margins were further constrained, the Kansas City Fed said.

However, while expectations for future activity cooled, they remained expansionary, the survey said.

The uncertainty of the tariffs is having a direct impact on business, said one respondent to the survey.

"We will be raising prices significantly for our imported products and seeking more domestic suppliers for our base raw material that we manufacture our products from--currently sourcing from Canada," the respondent said.

The survey covers activity in the Tenth District, which includes Colorado, Oklahoma, Wyoming, Nebraska, Kansas, the northern half of New Mexico and the western third of Missouri.