Manufacturing expands 2nd month in a row
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.
The report was issued today by Timothy R. Fiore, CPSM, C.P.M., chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee:
“The Manufacturing PMI registered 50.3% in February, 0.6 percentage point lower compared to the 50.9% recorded in January. The overall economy continued in expansion for the 58th month after one month of contraction in April 2020. (A Manufacturing PMI above 42.3%, over a period of time, generally indicates an expansion of the overall economy.)
The New Orders Index dropped back into contraction territory after expanding for three months, registering 48.6%, 6.5% age points lower than the 55.1% recorded in January. The February reading of the Production Index (50.7%) is 1.8% age points lower than January’s figure of 52.5%. The index expanded for the second month in a row after eight months in contraction. The Prices Index surged further into expansion (or ‘increasing’) territory, registering 62.4%, up 7.5 percentage points compared to the reading of 54.9% in January. The Backlog of Orders Index registered 46.8%, up 1.9 percentage points compared to the 44.9% recorded in January. The Employment Index registered 47.6%, down 2.7 percentage points from January’s figure of 50.3%.
“The Supplier Deliveries Index indicated further slowing deliveries, registering 54.5%, 3.6 percentage points higher than the 50.9% recorded in January. (Supplier Deliveries is the only ISM Report On Business index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 49.9%, up 4 percentage points compared to January’s reading of 45.9%.
“The New Export Orders Index reading of 51.4% is 1 percentage point lower than the reading of 52.4% registered in January. The Imports Index continued in expansion in February, registering 52.6%, 1.5 percentage points higher than January’s reading of 51.1%.”
Fiore continues, “U.S. manufacturing activity expanded marginally for the second month in a row in February after 26 consecutive months of contraction. Demand weakened, while output stabilized and inputs, for the first time in several months, contributed to PMI growth. Indications that demand weakened include: the (1) New Orders Index dropped into contraction territory, (2) New Export Orders Index continued expanding, but at a slower rate, (3) Backlog of Orders Index continued in contraction, but moved upward, and (4) Customers’ Inventories Index moved further into ‘too low’ territory.
Output (measured by the Production and Employment indexes) was stable. Factory output marginally expanded compared to January, indicating that panelists’ companies are being cautious about ramping up output in the face of economic headwinds. The Employment Index moved back into contraction, as panelists’ companies continued to release workers. More companies cited ‘attriting down’ as the best process, with destaffing not as urgent as it was in the second half of 2024. Inputs — defined as supplier deliveries, inventories, prices and imports — revealed the first signs of supplier difficulties due to some pull-forward deliveries and discussions about who will pay for tariffs. Inventories recovered somewhat as a result.
“Demand eased, production stabilized, and destaffing continued as panelists’ companies experience the first operational shock of the new administration’s tariff policy. 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%. Twenty-four percent of manufacturing gross domestic product (GDP) contracted in February, down from 43% in January. The share of manufacturing sector GDP registering a composite PMI calculation at or below 45% (a good barometer of overall manufacturing weakness) was 2% in February, a 6-percentage point improvement compared to the 8% reported in January. Of the six largest manufacturing industries, four (Petroleum & Coal Products; Food, Beverage & Tobacco Products; Chemical Products; and Transportation Equipment) expanded in February, equaling the number in January,” says Fiore.
The 10 manufacturing industries reporting growth in February — listed in order — are: Petroleum & Coal Products; Miscellaneous Manufacturing; Primary Metals; Wood Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Chemical Products; Plastics & Rubber Products; Fabricated Metal Products; and Transportation Equipment. The five industries reporting contraction in February are: Furniture & Related Products; Textile Mills; Nonmetallic Mineral Products; Computer & Electronic Products; and Machinery.
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]
• “Business is still slow, but some indications of improved demand are six to nine months out. Steel and scrap costs are increasing, and it’s too early to tell how high they will go.” [Fabricated Metal Products]
• “New orders continue to be strong after picking up in December. The uncertainty about tariffs keeps us cautious on spending, despite the strong sales right now.” [Electrical Equipment, Appliances & Components]
• “Management now has us running scenarios to project tariff impacts to our business. They want numbers in 24 hours on variables that equate to a wild guess. Interesting times we live in.” [Nonmetallic Mineral Products]
• “Internal analysis ongoing about impact of tariffs, but nothing concrete yet. General business conditions remain tepid; outlook on the durables side growing more pessimistic with growing domestic inventories of automobiles.” [Plastics & Rubber Products]
• “Customer volumes seem to be better than 2024. However, customers are still very hesitant to commit to long-term volumes due to the market uncertainty caused by proposed tariffs on steel/aluminum imports.” [Primary Metals]
INDUSTRIAL SUPPLY MAGAZINE
The March/April issue of Industrial Supply magazine features an in-depth cover story about Industrial Supply Co. Plus, we're featuring articles by contributing writers Dr. Bharani Nagarathnam and Frank Hurtte, as well as interviews with numerous product and distribution industry experts.
