US Manufacturing Activity Nears Stagnation While Prices Jump
US factory activity last month edged closer to stagnation as orders and employment contracted, while a gauge of prices paid for materials surged to the highest since June 2022.
The Institute for Supply Management’s manufacturing index slipped by 0.6 point in February to 50.3, according to data released Monday. Readings above 50 indicate growth. The group’s price measure increased 7.5 points to 62.4.
Rising input costs represent a challenge for manufacturers against a backdrop of shrinking orders that suggests demand is at risk of retrenching as businesses weigh the implications of tariffs from the Trump administration. Producers may be hard-pressed to pass on higher costs should sales continue to weaken.
After contracting in September for the first time since 2023, prices paid have shown growth for five straight months. While that suggests inflationary pressures are heating up again in the production pipeline, it’s unclear to what extent manufacturers can pass along those higher cost.
Last Friday, a government report showed the Federal Reserve’s preferred measure of underlying inflation, the so-called core personal consumption expenditures price index, rose in January at a subdued pace while consumer spending fell by the most in nearly four years.
The ISM survey data suggest that the optimism exhibited by factory managers in the wake of Donald Trump’s presidential election is tempered as threats of tariffs, and geopolitical risks increase uncertainty. Long-promised 25% tariffs on Mexico and Canada -- the two-largest US trading partners -- are set to take effect Tuesday.
The ISM measure of new orders fell 6.5 points to 48.6, the first contraction since October 2024, after three consecutive increases after the election.
The ISM production gauge also softened to 50.7 after a sharp advance last month to the highest level since March. That in turn discouraged hiring by manufacturers. The factory employment index fell 2.7 points to 47.6. The gauge has shown contracting employment in eight of the last nine months.
Meanwhile, the imports gauge rose to 52.6 the highest since March 2024 as companies increase orders with foreign suppliers before threatened tariffs take effect.
The overall ISM manufacturing index was underpinned by the largest monthly increase in the supplier deliveries gauge since September 2021. The lengthening of delivery times may have reflected transportation difficulties during a month in which there was severe winter weather across much of the US.
Source : Bloomberg
