Manufacturing activity improved in February, but growth remained muted due to poor weather conditions and uncertainty in the U.S. and global markets.
The Institute for Supply Management (ISM) said Monday that its Manufacturing Purchasing Manager’s Index was 52.4, down slightly from January but signifying solid growth. This was the first time since 2022 the index remained above the 50-point threshold representing growth for two straight months.
The latest data—paired with good ratings for consumer spending, employment and incoming retail sales number—indicate to economists the U.S. is experiencing a fundamentally stronger economy despite headwinds. Manufacturing demand continues to be soft, but the sector is beginning to stand on more solid ground.
“The numbers show you the economy held up pretty well,” said Steve Ricchiuto, chief economist for the Americas at Mizuho Securities USA.
Extreme weather and tariffs continued to weigh on the sector, said Stan Shipley, senior managing director and economist at Evercore, ISI. Winter storms in the South and Northeast in late January and mid-February temporarily halted supply chain movement and, in turn, factory operations.
President Trump’s import tariffs on foreign trading partners, which were first put in place this past April, have also added higher costs to importers and manufacturers and made customers more hesitant to commit to long-term purchases.
Growth in New Orders triggered improvement in the PMI, which economists linked to demand for chips for AI and electrical and computer equipment for data centers. The indicator expanded for a second month, but was down 1.3 percentage points from January. Similarly, the Production Index signalled growth, yet lagged behind January’s reading.
Tariff pressures continue to plague purchasing managers, with Backlog of Orders reaching its highest reading since May 2022 and Exports declining for the eighth consecutive month.
Purchasing managers highlighted rising costs of metals such as steel, copper and aluminium have pushed them to consider more domestic suppliers, but have lowered profitability as a whole. Prices also jumped 11.5 percentage points, which economists said could have downstream effects.
“The problem is once you push prices up, it works its way down the supply chain and it could work its way into wages,” Shipley said.
Since taking office, Trump has sought to ring in a “golden age” of manufacturing, promising to reopen closed factories and revitalize the once-booming industrial arm in the U.S. The latest ISM data shows that employment in the sector is continuing to decline, though more slowly than in prior months, which Chris Williamson, chief business economist at S&P Global Market Intelligence attributed to businesses’ concerns of maintaining overall financial health in a note.
The manufacturing sector added 5,000 jobs in January, but employment was down by 83,000 over the past year, according to the Bureau of Labor Statistics.
Looking ahead, economists believe political uncertainties around tariffs may stall long-term investment growth or hiring, as indicated by comments from purchasing managers. But “there are more expressions of optimism than what we have seen in quite some time,” Thomas Simons, senior economist at Jefferies LLC, wrote in a note. This is consistent with expectations that manufacturing activity will continue to grow this year, Simons wrote.
While Shipley believes there’s no sign of a major downturn in the near future, it’s not quite the manufacturing boom the Trump administration has promised, he said. “If it got above 55, that would be a boom.”
