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Manufacturing Shows Strength While Prices Accelerate
Producers Confront Higher Energy Costs and Tariff Effects as Orders, Output Remain Solid
Key Takeaways:
- U.S. manufacturing expanded in February as ISM’s factory index held at 52.4, but input prices surged to the highest level since 2022.
- The jump in the ISM prices‑paid gauge and rising oil and metals costs signal renewed inflation pressures for producers amid tariff effects and supply constraints.
- Supply chain strains, longer delivery times and growing order backlogs point to continued pressure ahead as markets await the Feb. 6 jobs report.
U.S. manufacturing expanded in February but input prices soared at the fastest pace since 2022, stoking fears of an inflation resurgence even before this weekend’s attacks on Iran.
The Institute for Supply Management’s gauge of prices paid for manufacturing inputs jumped 11.5 points to 70.5, the highest level since overall inflation peaked nearly four years ago.
The figures out March 2 reflected responses ahead of U.S. and Israeli airstrikes on Iran this past weekend. The war has all butÌýhaltedÌýoil tanker traffic through the Strait of Hormuz and pushed crude prices sharply higher.
The conflict also risks tempering a nascent recovery in manufacturing. ISM’s measure of factory activity was little changed at 52.4, indicating a second month of growth at one of the highest readings since 2022. Orders and production growth remained solid.
Treasury yields rose following the report. The S&P 500 remained lower.Ìý
The group’s price gauge is likely to remain elevated or even push higher over the near-term after oil prices jumped March 2 by the most since early 2022, following Russia’s invasion of Ukraine.
Higher energy prices represent the latest cost challenge for manufacturers. If sustained, producers may have little choice but to raise prices for their business customers and consumers.
Producer price data out last week showed the cost of unprocessed goods, minus food and energy, rose more than 15% in January from a year ago, the steepest annual gain since April 2022. A Bloomberg index of metals, including copper and aluminum, has also increased sharply this year.
The assortment of recent price data along with geopolitics point to a steady undercurrent of inflation for U.S. producers, which is being partially fed by higher import duties from the Trump administration. It also explains why Federal Reserve policymakers are in little rush to lower interest rates after three straight cuts at the end of 2025.
Twelve manufacturing industries reported growth in February, led by printing, textile mills and primary metals. Five industries contracted, including apparel and furniture.Ìý
The ISM report also showed longer supplier delivery times for manufacturers, with a measure rising to the highest level since May. That could reflect ongoing supply-chain challenges as producers adjust to tariffs.
Order backlogs also mounted, with the group’s measure jumping 5 points to the highest level since May 2022. That likely includes the impact from resilient economic activity.
Meanwhile, factory employment shrank at a slower pace. The group’s index improved to 48.8, the highest in a year. The Bureau of Labor Statistics will release the February jobs report on March 6.
