ISM Manufacturing Slips in February: Rising Prices and Weak Orders Signal Growing Pressures
2min read The latest ISM Manufacturing PMI report for February showed a slight downturn in U.S. manufacturing activity, coming in at 50.3, down from January’s 50.9 and missing analysts’ expectations of 50.5. While this marks the second consecutive month of expansion after 26 straight months of contraction, the sector’s growth appears fragile, weighed down by weakening new orders and rising price pressures.
The Prices Paid Index, a key indicator of inflationary pressures within the sector, surged to 62.4 from 54.9 in January. This significant jump indicates mounting cost pressures, driven by rising input prices and the anticipation of new tariffs on imports. The Employment Index also weakened, falling to 47.6 from 50.3, signaling a return to contraction as manufacturers continue to manage costs through workforce reductions. Meanwhile, the New Orders Index dropped sharply to 48.6 from 55.1, reflecting a pullback in demand that could weigh on future production.
One of the more concerning elements of the report is the decline in new orders, which had previously been expanding for three months. The drop back into contraction suggests that demand, both domestically and abroad, may be softening. This decline coincides with increasing uncertainty around tariff policies and their potential impact on supply chains. While export orders remained in expansion territory at 51.4, they still declined from January’s 52.4, indicating slower international demand growth.
On the supply side, supplier deliveries slowed further, with the index climbing to 54.5 from 50.9. Slower delivery times typically indicate increasing demand, but in this case, businesses have noted that uncertainty around tariffs and supply chain disruptions have played a role in lengthening delivery schedules. Inventories showed slight improvement, with the index rising to 49.9 from 45.9, but still hovering near contraction territory.
Industry responses to the report were mixed, with many manufacturers citing concerns about tariff-related price increases and ongoing economic uncertainty. A representative from the Chemical Products industry highlighted the volatility caused by the new trade environment, stating, “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.” Meanwhile, a participant from the Machinery sector noted, “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.”
Other manufacturers expressed similar concerns regarding pricing pressures and their impact on business decisions. A respondent from the Food, Beverage & Tobacco Products sector mentioned, “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.” Meanwhile, a Transportation Equipment manufacturer pointed to the unpredictable nature of tariffs as a key challenge, stating, “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.”
Despite these challenges, some sectors continued to show resilience. The ISM report highlighted that ten manufacturing industries posted growth in February, including Petroleum & Coal Products, Primary Metals, Food, Beverage & Tobacco Products, Electrical Equipment, Appliances & Components, and Transportation Equipment. However, five industries remained in contraction, including Furniture & Related Products, Textile Mills, Nonmetallic Mineral Products, Computer & Electronic Products, and Machinery.
Overall, the February ISM Manufacturing PMI report paints a picture of a sector that is expanding but facing mounting pressures. The sharp increase in prices paid, coupled with declining new orders and weakening employment, suggests that inflationary forces and economic uncertainty could hinder growth in the coming months. With the first round of new tariffs set to take effect in mid-March, manufacturers are bracing for further cost increases and potential disruptions to supply chains. The resilience of U.S. manufacturing will likely depend on how businesses navigate these challenges while managing costs and maintaining demand.