For the second consecutive month, the U.S. manufacturing sector has expanded—albeit at a slower pace than in January. The February 2025 ISM Manufacturing PMI® came in at 50.3%, a decline from January’s 50.9%, signaling that growth, while present, is losing momentum. This report presents both encouraging and concerning indicators: while output continues to expand, new orders have contracted, employment is shrinking, and prices are rising significantly due to tariff-related cost pressures.
While two months of expansion technically mark a turning point after 26 consecutive months of contraction, the fragile nature of this recovery raises key questions about the strength of manufacturing, the role of inflation, and the impact of policy decisions. A closer look at the data shows mixed signals, reinforcing that economic uncertainty remains high.
A Side-by-Side Comparison: February vs. January
Indicator | February 2025 | January 2025 | Change | Interpretation |
Manufacturing PMI® | 50.3% | 50.9% | -0.6 | Expansion slowing |
New Orders Index | 48.6% | 55.1% | -6.5 | Demand weakening |
Production Index | 50.7% | 52.5% | -1.8 | Growth slowing |
Employment Index | 47.6% | 50.3% | -2.7 | Job losses return |
Supplier Deliveries | 54.5% | 50.9% | +3.6 | Delays worsening |
Inventories Index | 49.9% | 45.9% | +4.0 | Improved restocking |
Prices Index | 62.4% | 54.9% | +7.5 | Inflationary pressures rising |
What Stands Out?
New Orders Contract Again: Perhaps the most significant red flag in this report is the reversal of new orders, which fell sharply from 55.1% to 48.6%. This shift suggests demand is weakening after a brief rebound, possibly reflecting caution from businesses facing tariff uncertainty and rising costs.
Employment Back in Contraction: The employment index fell to 47.6%, indicating that job losses have resumed. Companies are still hesitant to ramp up hiring, suggesting concerns about future demand and cost structures.
Prices Surge as Tariffs Loom: The Prices Index jumped from 54.9% to 62.4%, a clear indication that inflationary pressures are building up. Spot commodity prices have already risen 20% in anticipation of upcoming tariffs, affecting everything from steel and aluminum to plastics and electronics.
Supplier Deliveries Slowing Again: The Supplier Deliveries Index jumped from 50.9% to 54.5%, a sign that supply chain pressures are mounting. This trend is partially due to companies front-loading shipments ahead of expected tariff changes, but it could lead to further disruptions if import costs continue to rise.
What This Means for the Economy
A PMI above 50% generally indicates expansion in manufacturing, and historically, a reading of 50.3% aligns with an annual GDP growth of roughly 2.2%. However, the weakening new orders, rising prices, and contracting employment present risks to sustained expansion.
1. Will Inflation Reignite?
The acceleration in prices is a major concern. Tariffs on steel, aluminum, and industrial components are expected to take effect in mid-March, and the anticipation of higher costs is already driving up prices. This could spill over into consumer inflation, potentially forcing the Federal Reserve to reconsider its interest rate trajectory.
2. Manufacturing’s Uneven Recovery
While some industries—such as petroleum, food, and transportation equipment—are expanding, others remain in decline. Notably, computer and electronics manufacturing is contracting, reflecting uncertainty in the technology sector. If new orders do not rebound, the broader recovery could be short-lived.
3. The Job Market is Softening
The return to employment contraction suggests that businesses remain cautious. Unlike in past recoveries where hiring rebounded quickly, companies are prioritizing efficiency over expansion. This trend could dampen consumer spending power, further slowing demand.
What to Watch in the Coming Months
New Orders Trajectory: If new orders remain below 50%, it would signal that manufacturing expansion is losing momentum and could return to contraction.
Impact of Tariffs: As tariffs officially take effect in March, the extent of price increases and supply chain disruptions will become clearer. Will companies absorb these costs, or will they be passed on to consumers?
Federal Reserve’s Response: Rising prices and slowing growth create a difficult policy environment. If inflation accelerates, the Fed could delay rate cuts or even signal a need for more tightening.
Global Trade Reactions: With U.S. tariffs expected to impact China, Mexico, and Canada, potential retaliatory measures could add to uncertainty. How these policies affect export demand and supply chain efficiency will be crucial.
Conclusion: Proceed with Caution
The February 2025 ISM Manufacturing PMI report is a mixed bag—growth is technically still happening, but early signs of economic strain are emerging. The sharp drop in new orders, rising costs, and employment contraction suggest that the manufacturing sector is far from a robust recovery.
Policymakers, investors, and businesses should be wary. If new orders continue to decline and inflationary pressures persist, the risk of stagnation or another downturn increases. At the same time, the broader economy’s resilience depends on whether manufacturing can sustain growth in the coming months.
As the tariff landscape shifts and inflation concerns mount, all eyes will be on the March data to determine whether February’s slowdown is temporary—or the start of a more significant downturn.
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