US Manufacturing Grows, But Costs Surge
U.S. manufacturing expanded for a second straight month in February, with the ISM PMI at 52.4. But a key concern is a surge in "factory gate" inflation, as input prices for manufacturers jumped at the fastest rate in a year, signaling persistent cost pressures.
The sharp rise in input costs brought the ISM Prices Index to 70.5, an 11.5-point jump from January and its highest reading since June 2022. This signals a significant reacceleration of inflationary pressures for producers. Commentary from the ISM report points to tariffs and rising costs for metals like steel and aluminum as key drivers behind the price surge. Some manufacturers noted that tariff policies are impacting sourcing decisions, forcing a greater reliance on more expensive domestic raw materials. While the main PMI shows expansion, forward-looking components like the New Orders Index (55.8) and the Production Index (53.5) actually slowed compared to January's figures. This suggests the pace of growth, while still positive, has moderated. In a sign of resilient demand, the Backlog of Orders Index surged 5 points to 56.6, its highest level since May 2022. This increase in unfilled orders could support production in the coming months. Despite the headline growth, the Employment Index remained in contraction at 48.8. This marks the 29th consecutive month of shrinking factory payrolls, as companies continue to manage headcount cautiously. Growth was not uniform across the sector. Twelve industries, including Transportation Equipment and Computer & Electronic Products, expanded. However, five industries, such as Furniture and Food, Beverage & Tobacco Products, reported contraction. This combination of steady growth and surging costs has caught the attention of economists. The sharp uptick in the prices index suggests inflation pressures were building even before recent oil price spikes, making a near-term interest rate cut by the Federal Reserve less likely.
