U.S. factories reported robust demand for their products in March but say rising prices for materials, tied to new tariffs, threaten to slow the industry’s expansion.

The Institute for Supply Management said Monday its index of factory activity settled at 59.3 in March, down slightly from 60.8 the prior month. Any reading above 50 indicates rising activity, as measured by factors such as product sales, hiring and production.

The latest reading, based on a survey of factories, was slightly below economists’ expectations of a reading of 59.8. But it remained near the highest levels of the past decade. In February, the index stood at the highest level since 2004.

Factories reported strong demand for a range of products. But they also voiced concerns about higher prices for commodities such as steel and aluminum. President Donald Trumpannounced in early March a plan to impose 25% tariffs on steel imports and 10% on aluminum. Monday’s report showed that an index of prices rose nearly 4 percentage points last month to 78.1, the highest since April 2011. The rise in the index reflects the breadth of price increases—how many factories are affected—rather than the severity.

Even though the survey was conducted before the tariffs took effect, distributors of those materials almost immediately raised their prices after Mr. Trump’s announcement, said Timothy Fiore, head of the ISM survey.