Manufacturing Grows, But Costs Surge
U.S. manufacturing activity continued to expand in February, with the ISM PMI registering a solid 52.4. However, the report also showed that factory input and gate prices surged, adding significant cost pressures and reinforcing broader inflation concerns.
The surge in costs was dramatic, with the Prices Index jumping 11.5 points to 70.5. This marks the highest level since June 2022 and the 17th consecutive month of increasing raw materials prices. Supply chain issues are intensifying. The Supplier Deliveries Index indicated slower performance for the third straight month, and order backlogs climbed to their highest point since May 2022. Manufacturers specifically blame tariffs for driving up the cost of metals like steel and aluminum, forcing them to use more expensive domestic sources. Despite the growth headline, the manufacturing job market continues to shrink. The Employment Index remained in contraction for the 29th consecutive month, with firms opting to manage headcount by not filling open positions. However, demand for goods remains solid. The New Orders Index registered a strong 55.8, and crucially, the Customers' Inventories Index remained in "too low" territory. This signals a potential need for future production increases to restock depleted customer shelves. These inflationary signals are complicating matters for the Federal Reserve. The combination of rising costs and slowing, but continued, expansion may give policymakers reason to pause on any potential interest rate cuts. Locally, the industrial real estate market in Rhode Island remains healthy, with vacancy rates between 4-5%, below the national average. Much of this demand continues to be driven by the manufacturing and logistics sectors. Looking ahead, a proposed $115 million Economic Development Bond is slated for the November 2026 ballot in Rhode Island. The bond aims to fund the development of large-scale, pad-ready industrial sites to further boost the state's manufacturing infrastructure.
