US Manufacturing Steady as Tariffs Push Prices Up
The ISM Manufacturing PMI remained steady at 52.4 in February, slightly below January’s 52.6 reading. The index stayed above 50 for a second straight month, signaling expansion in US manufacturing activity.
The rise in input prices reported by the Institute for Supply Management increased concerns about inflation. Oil prices also jumped after U.S. and Israeli attacks killed Ali Khamenei. These developments strengthened expectations that the Federal Reserve will keep interest rates unchanged. Tehran’s retaliation added further uncertainty to the market.
Before the latest geopolitical shock, the government had already reported faster producer price growth in January. The data showed that the country was facing rising inflation pressure.
The inflation of the prices paid index will also give the Fed a few eyebrows as Thomas Ryan, North America economist, Capital Economics said that the increase of the goods inflation was already on the cards.
Manufacturing Holds Expansion Despite Price Pressures
Technology-focused manufacturing gained momentum due to AI adoption and data center expansion. Still, US manufacturing has not achieved the revival policymakers envisioned, and factory employment has declined by 83,000 jobs since January 2025.
The activity on factories had recovered in January following 10 months of continuous shrinkage. The growth was recorded in twelve industries among which are primary metals, machinery, electrical equipment and transportation equipment.
There were five shrinking industries, which are furniture and food, beverage and tobacco products. The survey was a mixed portrait with some of the businesses mentioning stabilization whereas others mentioned strain associated with tariffs.
The widespread tariffs by President Donald Trump have limited the production sector which contributes approximately 10.1% of the U.S. economy. The U.S. Supreme Court overturned certain emergency tariffs, but the administration quickly replaced them with new global tariffs of 10 percent, set to rise to 15 percent.
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Tariffs Weigh on Costs, AI Offers Relief
With pressure on tariffs, tech-driven production took a step forward with the increased adoption of AI and the construction of more data centers. Nevertheless, the industry remains yet to be revived as per the import duties and factory jobs have been reduced with 83,000 jobs since January 2025.
The manufacturers of transportation equipment testified that tariffs increased prices and reduced demand and profitability. They also observed that local steel and aluminum are one of the most expensive in the world.
The manufacturers of machinery and computer products mentioned the increased acquisition prices and high metals prices. Others gave rise to better orders and growing backlog, especially fabricated metal products, in which employment was stronger.
Inflation Risks Intensify as Oil and Input Costs Climb
The index of new orders in the ISM relaxed to 55.8 following the January spurt but the backlog orders were the highest since May 2022. Export demand remained the same and supplier deliveries decelerated further.
The supplier deliveries index increased to 55.1 and it shows that there were still delays. Meanwhile, prices paid index surged to its highest point in more than two years, 70.5, indicating severe rises in steel and aluminum prices.
Chair, ISM Manufacturing Business Survey Committee Susan Spence told us that metal prices and tariffs on imported goods remained high and were still causing cost pressure up the supply chain.
With production jobs still subdued, analysts warned that any prolonged oil shock could complicate future Federal Reserve interest rates decisions and add further strain to US manufacturing.