–ISM Manufacturing Index at 50.3 Vs. 50.9 in January, Below Consensus (50.5)
–ISM’s Fiore: February Report ‘Overshadowed’ by Tariff Talk among Firms
–Fiore: Lower New Orders, Higher Inventories, Slower Supply Deliveries ‘One-Month Blip, Might Clear Up in March or April
–Fiore: This Doesn’t Indicate Decline in Overall ISM Manufacturing Activity
By Max Sato
(MaceNews) – U.S. manufacturing activity managed to stay in growth territory in February but slowed to just above the neutral line as imminent Trump tariffs on imports from Canada and Mexico intensified uncertainties, damping new orders, jacking up prices and prompting some suppliers to refuse to deliver until it was decided who would pay for high tariff costs.
The latest data released Monday by the Institute for Supply Management also showed surveyed companies continued reducing head counts through layoffs, attrition and hiring freezes as they feel the first wave of tariff impacts.
The ISM sector index slipped 0.6 percentage point to 50.3 in February, just above the make-or-break line of 50 and slightly below the consensus call of 50.5. It had sprung back to life from 26 months of doldrums in January, when it rose 1.7 points to 50.9.
“Demand eased, production stabilized, and destaffing continued as panelists’ companies experience the first operational shock of the new administration’s tariff policy,” Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement. “Prices growth accelerated due to tariffs, causing new order placement backlogs, supplier delivery stoppages and manufacturing inventory impacts.”
Describing the February ISM report as “overshadowed” by talk on tariffs, Fiore told reporters that while lower new orders, higher inventories and slower supply deliveries seem to be a “one-month blip,” the jump in the price paid index is clearly “not a blip” but the reality brought on by the protectionist trade policy under the current U.S. administration.
“This thing might clear up in the March timeframe or the April timeframe,” Firoe predicated. “I don’t think this is indicating that we are on a decline here… but you can see that there is an anxiety in the community because there are disagreements about who’s going to pay for this (a higher tariff cost).”
Fiore warned that the 7.5-point surge in the prices paid index to 62.4 in February entails uncomfortably higher consumer and producer costs in the CPI and PPI data due in coming months.
He also cautioned that expected higher costs from the tariffs appear to have prompted manufacturers to try to force suppliers to lower prices because they could not fully pass the tariff costs onto customers unless their productivity were to improve in a short period of time, which is unlikely. For their part, Fiore said, the suppliers have declined to take new orders and they are even refusing to deliver materials until all parties agree who would pick up the tariff tabs.
President Donald Trump has launched a trade war by signing executive orders to impose 25% tariffs on Canadian and Mexican imports to the U.S. and an additional 10% on China over illegal immigration and drug trafficking for which he blames those countries.
It is still uncertain exactly when those punitive measures will take effect and at what percentage. The planned tariffs against Canada and Mexico are set to go ahead on Tuesday at 25 percent.
Among the five subindexes that directly factor into the manufacturing PMI, three were in negative territory: the new orders index at 48.6 (-6.5 points), employment 47.6 (-2.7) and manufacturer inventories 49.9 (+4.0). Two showed growth: production 50.7 (-1.8) and supplier deliveries 54.5 (+0.8). Among others, the prices paid index at 62.4 (+7.5) indicates raw materials prices increased for the fifth straight month after a decrease in September.
The new orders index contracted in February after expanding for three consecutive months, registering 48.6, a decrease of 6.5 points from January’s 55.1. This is the steepest decline since April 2020, when the index plunged 15.1 points in the early phase of the global pandemic. The index hasn’t indicated consistent growth since a 24-month streak of expansion that ended in May 2022.
The production index was in expansion territory in February for the second straight month, at 50.7, but down 1.8 points from the January reading of 52.5. Previously, the index had been in contraction territory for eight consecutive months. Prior to the last two months, the last time the index registered above 50 was in April 2024 (50.7).
The employment index stood at 47.6 in February, falling 2.7 points from 50.3 in January, when it rose 4.9 points, briefly returning to growth territory after seven months of contraction. Since May 2022, the index has contracted 27 of the last 34 months. Firms are continuing to release employees as the business environment becomes more unclear, Fiore noted.
Delivery performance of suppliers to manufacturing organizations was slower in February. The supplier deliveries index (the only one that is inversed) stood at 54.5, a 3.6-point rise from 50.9 in January, indicating slower delivery performance for the third straight month and the seventh in the past 12 months.
The manufacturing inventories index was in contractionfor the sixth consecutive month. It was at 49.9 in February, up a notable 4.0 points from 45.9 in January. Firms were asking for earlier deliveries of materials due to a potential port work stoppage and the financial impacts of tariffs deployment, Fiore said.
Among other subindexes, the prices paid index surged 7.5 points to 62.4 in February, hitting the highest since 78.5 in June 2022 and following a 2.4-point rise to 54.9 in January. It is the largest month-on-month increase since a 7.7-point gain in January 2024 (52.9) and an 11.5-point jump in March 2022 (87.1), a month after Russia invaded Ukraine, triggering a spike in global energy and commodities markets.