Economic activity in the manufacturing sector expanded for the second month in a row in February after 26 consecutive months of contraction, say the nation's supply executives in the latest Manufacturing ISM Report On Business, released on March 3.
"Demand eased, production stabilized, and destaffing continued as panelists' companies experience the first operational shock of the new administration's tariff policy," said Timothy R. Fiore, of ISM in a statement. "Prices growth accelerated due to tariffs, causing new order placement backlogs, supplier delivery stoppages and manufacturing inventory impacts. Although tariffs do not go into force until mid-March, spot commodity prices have already risen about 20%.
The index readings are as follows:
Supplier Deliveries Index indicated further slowing deliveries, registering 54.5%, 3.6 percentage points higher than the 50.9% recorded in January.
Inventories Index registered 49.9%, up 4 percentage points compared to January's reading of 45.9%.
New Orders Index registered 48.6%, 6.5 percentage points lower than the 55.1% recorded in January.
Production Index, at 50.7%, is 1.8 percentage points lower than January's figure of 52.5%. The index expanded for the second month in a row after eight months in contraction.
Prices Index registered 62.4%, up 7.5 percentage points compared to the reading of 54.9% in January.
Backlog of Orders Index registered 46.8%, up 1.9 percentage points compared to the 44.9% recorded in January.
Employment Index registered 47.6%, down 2.7 percentage points from January's figure of 50.3%.
New Export Orders Index reading of 51.4% is 1 percentage point lower than the reading of 52.4% registered in January.
Imports Index continued in expansion in February, registering 52.6%, 1.5 percentage points higher than January's reading of 51.1%.
What Respondents are Saying
- "The tariff environment regarding products from Mexico and Canada has created uncertainty and volatility among our customers and increased our exposure to retaliatory measures from these countries." [Chemical Products]
- "Customers are pausing on new orders as a result of uncertainty regarding tariffs. There is no clear direction from the administration on how they will be implemented, so it's harder to project how they will affect business." [Transportation Equipment]
- "Tariff impact has been minimal to overall manufacturing and raw material supply. Limits on U.S. government spending in key organizations like the Food and Drug Administration, Environmental Protection Agency and National Institutes of Health are delaying some orders." [Computer & Electronic Products]
- "Inflation and pricing pressure continue to drive uncertainty in our 2025 outlook. We are seeing volume impacts due to pricing, with customers buying less and looking for substitution options." [Food, Beverage & Tobacco Products]
- "The incoming tariffs are causing our products to increase in price. Sweeping price increases are incoming from suppliers. Most are noting increases in labor costs. Vendors are indicating open capacity. Inflationary pressures are a concern. Our company is working diligently to see how the new tariffs will affect our business." [Machinery]
