World industrial activity fell in March as consumers feeling the squeeze of rising living expenses pulled down, according to surveys released on Monday, implying that a dismal outlook would continue to stymie economic recovery and keep policymakers on their toes.

According to the Institute for Supply Management (ISM), industrial activity in the United States has dropped to its lowest level in over three years, as new orders continue to fall.

Its manufacturing PMI fell to 46.3 last month, the lowest reading since May 2020, from 47.7 in February. Economists polled by Reuters had forecast the index dipping to 47.5.

It was the fifth straight month that the PMI remained below the 50 threshold, which indicates contraction in manufacturing. But so-called hard data have suggested that manufacturing, which accounts for 11.3% of the economy, continues to grow moderately.

Rising borrowing costs as the Federal Reserve fights high inflation have cooled demand for goods, which are typically bought on credit. Demand could also come under further pressure following the recent failure of two U.S. regional banks and the takeover of Credit Suisse, which stressed the financial sector.

“While an onshoring of supply networks and investment in domestic manufacturing capacity could provide support to factory activity, a further tightening in credit conditions may be a hurdle going forward,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

The U.S. central bank is expected to pause its tightening cycle soon, but the outlook remains clouded by the banking-sector troubles, still-high inflation and slowing global growth with market turbulence shedding light on potential vulnerabilities in the world financial system.

The ISM’s survey did, however, also show work backlogs continued to shrink last month, reflecting the drop in demand as well as improved supply chains.

With supply improving, inflation at the factory gate retreated. The ISM survey’s measure of prices paid by manufacturers dropped to 49.2 from 51.3 in February.

But oil prices surged on Monday, posting the biggest daily rise in nearly a year, after a surprise announcement by OPEC+ on Sunday to cut more production, likely adding to inflationary pressures.