Manufacturing production and demand continued to expand last month, driven in part by companies eager to place orders before the Trump administration imposes new tariffs.
S&P Global's February U.S. Purchasing Managers' Index reached 52.7 in February, up from 51.2 the month before. A reading above 50.0 signals an industry in economic growth.
The bump, however, is driven largely by anxiety in the sector over the impact of tariffs on input prices.
"There’s much to suggest that this improvement could be short lived. Production and purchasing were often buoyed by companies and their customers building inventory to beat price hikes and supply issues caused by tariffs," Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.
The Institute for Supply Management’s Purchasing Managers’ Index showed a slightly lower reading at 50.3%, down from 50.9% in January. ISM reported price increases as a result of tariff announcements — commodity spot prices rose 20% compared to the previous month, including on steel and aluminum.
Like S&P, the ISM report noted increases in production and orders due to looming tariffs, while supplier deliveries slowed. Suppliers have become reticent to take on as many new orders "because they want to make sure that they're not going to be [the ones] paying for the tariffs," Timothy Fiore, chair of the ISM’s manufacturing business survey committee, said on a media call Monday.
"You can see that there's anxiety in the community because there's disagreements about who's going to pay for this," Fiore said.
The use of layoffs to manage headcount dropped some last month, according to ISM, as companies turned to attrition instead. The employment index overall however dropped from 50.3% in January to 47.6% this month, according to ISM.
Lower inventory levels and slower supplier deliveries last month could be a "blip," Fiore said, due to the tariffs, but the economist noted he expects prices to remain elevated amid the policy change. Manufacturers, he said, are grappling with how to absorb the higher prices coming from the tariffs.
"All you have then is either productivity improvement or force it down on suppliers," Fiore said. "Therefore the suppliers didn't accept new orders, and they, in some cases, may not even have wanted to deliver the material until those agreements were raised."
Price concerns were well-founded, with input cost inflation reaching its highest level since November 2022, according to S&P.
"Worries have noticeably swelled in relation to the inflationary impact of tariffs, which were widely reported as having caused factory input costs to spike higher in February," Williamson said. "These higher costs are being passed on to customers, resulting in the strongest factory gate price inflation recorded for two years, which manufacturers fear may in turn not only damage sales in the coming months but also encourage the Fed to take a more hawkish view of inflation.”
