United States manufacturing activity continued to slowly rise in February, but prices for newly-produced goods surged amid tariff pressures.
The manufacturing purchasers managers index (PMI) declined from 52.6% in January to 52.4% in February, per the Institute for Supply Management (ISM). This was above Reuters-polled economists’ forecast of 51.8%.
“In February, U.S. manufacturing activity remained in expansion territory, although growing at a slower pace than the month before. Of the five subindexes that make up the PMI, two (New Orders and Production) indicated slower growth compared to the previous month, and the Employment and Inventories indexes remained in contraction,” said chair of the ISM Manufacturing Business Survey Committee Susan Spence.
February’s production index was 53.5%, 2.4 percentage points below January’s reading. The employment index increased from 48.1% to 48.8% during the month.
“The Production Index is in expansion for the fourth month in a row, and the Employment Index, though still in contraction, improved by 0.7-percentage point,” said Spence. “However, 45 percent of panelists still indicate that managing head counts is the norm at their companies as opposed to hiring.”
The prices index spiked 11.5 percentage points to 70.5%, its highest reading since 2022. Trade services prices soared in January, the U.S. Bureau of Labor Statistics said last week, largely due to tariffs.
The rise in prices will likely further decrease the chances of a rate cut before June. “The surge in the prices paid index will raise some eyebrows at the Fed[eral Reserve], however, as it suggests further goods inflation pressures were in the pipeline even before factoring in the surge in oil prices due to events in the Middle East,” said Capital Economics North America economist Thomas Ryan.
The U.S. Supreme Court ruled in February that the blanket tariffs imposed under the International Emergency Economic Powers Act were unlawful. A new set of 15% tariffs has now been added under a separate law, though these will expire after 150 days unless Congress votes to extend them.
One survey respondent in the transportation equipment industry said the newly-imposed slate of tariffs was “raising prices while lowering demand and profitability.” Others in the machinery and electronic products sectors also said purchasing costs had been impacted by tariffs.
According to the ISM, 12 manufacturing industries saw growth in February, including chemical products, machinery, transportation equipment, and electronic products. Five reported a contraction, including apparel, furniture, and petroleum.
