ISM: Manufacturing Expands for Second Month

Economic activity in the manufacturing sector expanded in February for the second straight month. However, this expansion is only the third one in 40 months, according to the ISM’s Manufacturing PMI Report on March 2.

The Manufacturing PMI registered 52.4% in February, a 0.2-percentage point decrease compared to the reading of 52.6% in January.

The overall economy continued in expansion for the 16th month.

"In February, U.S. manufacturing activity remained in expansion territory, although growing at a slower pace than the month before,” said Susan Spence, chair of ISM’s Manufacturing Business Survey Committee, in a statement. "Three demand indicators (the New Orders, Backlog of Orders and New Export Orders indexes) are in expansion, and the Customers' Inventories Index remains in 'too low' territory, contracting at a slightly slower rate. A 'too low' status for the Customers' Inventories Index is usually considered positive for future production."

Index readings are as follows:

-- Supplier Deliveries Index indicated a reading of 55.1% is up 0.7 percentage point from the 54.4% in January. 

--Inventories Index registered 48.8%, up 1.2 percentage points compared to January's reading of 47.6%.

-- Customers' Inventories Index reading of 38.8% is a 0.1-percentage point increase compared to January.

 --New Export Orders Index reading of 50.3% is 0.1 percentage point higher than the reading of 50.2% registered in January.

--Imports Index registered 54.9%, 4.9 percentage points higher than January's reading of 50% and the highest since February 2022 (55.4%).

-- New Orders Index expanded for the second straight month after four straight readings in contraction, registering 55.8%, down 1.3 percentage points compared to January's figure of 57.1%.

--Production Index registered 53.5%, 2.4 percentage points lower than January's reading of 55.9%.

--Prices Index registered 70.5%, an 11.5-percentage point jump from January's reading of 59% and its highest reading since June 2022 (78.5%).

-- Backlog of Orders Index registered 56.6%, up 5 percentage points compared to the 51.6% recorded in January and its highest reading since May 2022 (58.7 %).

--Employment Index registered 48.8%, up 0.7 percentage point from January's figure of 48.1%.

Matthew Martin, senior US Economist at Oxford Economics, offered the following analysis of the report: 

The ISM manufacturing index remained well in expansion territory in February, bolstering our call for an upswing in the sector after three years in the doldrums. Strong new orders, a rising backlog of orders, and low customer inventories suggest there will be momentum in the sector.

The black mark on the report was the surge in the prices index, which jumped above levels seen last year when tariff policies were first enacted. High steel and aluminum prices linked to tariff policy are the largest gripe, while renewed tariff uncertainty and higher global oil prices in response to the US-Iran conflict could keep producer prices elevated in the near-term.

Uncertainty is bleeding through to employment, which is lagging the demand indicators, with the index still in contraction. However, this month's report noted attrition rather than layoffs was the main head-count management strategy, a subtle but notable shift in tone.

What Respondents are Saying

• "Today, American produced commodities like steel and aluminum are the highest priced in the world, by far. Hence, the Section 232 tariff policy is having the exact opposite effect of their intention on an American manufacturer like us: It is raising prices while lowering demand and profitability." [Transportation Equipment]
• "Economic activity seems to be also challenging for this year. Some recovery in certain sectors in the economy but still lot of cost pressures and soft demand. Cost discipline is the priority." [Chemical Products]
• "January sales continued to provide positive indications for growth opportunities. Data center, health care, and food and beverages remain positive growth areas. We continue to receive price increase notifications from suppliers based on unsupported tariff claims and are expanding corporate staff to support sales growth." [Chemical Products]
• "South American instability has begun to be a factor for our suppliers and inventory management." [Petroleum & Coal Products]
• "Pricing for outside purchases has stabilized. We are spending significant effort to work with our supply base to mitigate tariff impacts. Backlog is at a healthy level." [Miscellaneous Manufacturing]
• "Overall orders and supply footprint are improving. As we review customer demand, we are also taking several categories of established materials and supplies out to RFP for review and cost improvements — in particular, printed circuit assemblies, plastics, sheet metal assemblies and motorized assemblies. This will help ease the burden of tariff and customer impacts as we broaden our supplier base to a more regional footprint." [Computer & Electronic Products]
• "Continue to be impacted by tariffs. Seeing metals prices rise too. Business is steady, but domestic growth is slower than expected." [Computer & Electronic Products]
• "Business was slow in January. Many orders pulled into end of 2025 to meet revenue goals. Order book is strong going forward." [Electrical Equipment, Appliances & Components]
• "Tariff policy changes affect total acquisition costs and purchasing source decisions. So far this year, tariff instability still exists. Due to the tariffs, most raw materials used in manufacturing, such as steel and wire, need to be sourced domestically, and the cost keeps going up." [Machinery]
• "Business is improving by the week. Backlog is growing, and new opportunities are everywhere. Monthly shipments are still lower than planned, but improving. Over the past five years, we spent thousands trying to attract new employees and had almost zero responses. In the last six months, however, we've been able to hire experienced engineers, computer numerical control (CNC) operators, and young people wanting to become CNC machinists." [Fabricated Metal Products]