Manufacturing output saw growth in February, which was preceded by January growth to start the year, following a 26-month stretch of contraction, according to the new edition of the Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).

The report’s benchmark reading, the PMI, came in at 50.3 (a reading of 50 or higher indicates growth), down 0.6% compared to January’s 50.9 reading. The February PMI grew, at a slower rate, for the second consecutive month in February.

The February PMI represents the highest reading over the last 12 months and is 2.3% above the 12-month average of 48.6. October’s 46.9 reading marks the low over the past 12 months.

ISM reported that 10 manufacturing sectors saw growth in February, including: Petroleum & Coal Products; Miscellaneous Manufacturing; Primary Metals; Wood Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Chemical Products; Plastics & Rubber Products; Fabricated Metal Products; and Transportation Equipment. Sectors experiencing contraction included: Furniture & Related Products; Textile Mills; Nonmetallic Mineral Products; Computer & Electronic Products; and Machinery.

The report’s key metrics showed mixed results in February:

• New Orders, considered the engine driving manufacturing, fell 6.5%, to 48.6, contracting, after three months of growth, representing its steepest single-month decline going back to April 2020’s 15.1% decline. The category had not seen consistent growth since a 24-month stretch of expansion ended in May 2022 (ISM reported that nine sectors saw growth in New Orders in January);
• Production, at 50.7, fell 1.8%, growing, at a slower rate, for the second consecutive month, which was preceded by eight consecutive months of contraction to end 2024, when it stood at 50.7), with seven sectors reporting growth;
• Employment, at 47.6, was off 2.7% compared to January, which saw growth after contracting in 14 of the previous 16 months, with six sectors reporting growth;
• Supplier Deliveries, at 54.5 (a reading above 50 indicates slower deliveries), slowed at a faster rate for the third consecutive month, following four months of slower deliveries, with nine sectors reporting slower deliveries in February;
• Backlog of Orders, at 46.8, increased 1.9%, contracting at a faster rate for the 29th consecutive month after 27 months of growth, with five sectors reporting expanded order backlogs;
• Prices, at 62.4, rose 7.5%, increasing at a faster rate for the fifth consecutive month, marking the largest month-over-month gains since January 2024, when it went up 7.7%, with six sectors reporting higher prices;
• Inventories, at 49.9, increased 4.0%, contracting, at a slower rate, for the sixth consecutive month, just missing the 50 mark, which it has not seen since August 2024, when it hit 50.2, with seven sectors reporting higher inventories in February; and
• Customers’ Inventories, at 45.3, down 1.4%, falling “too low,” at a faster rate, for the fifth consecutive month, with two sectors reporting higher Customers’ Inventories

Tariffs and the economy were the main themes cited in ISM panel respondents’ comments.

A Chemical Products respondent said the tariff environment regarding products from Mexico and Canada has created uncertainty and volatility among his customers and increased exposure to retaliatory measures from these countries.

And a Food, Beverage, and Tobacco Products respondent observed that inflation and pricing pressure continue to drive uncertainty in his company’s 2025 outlook, with his company seeing volume impacts due to pricing, with customers buying less and looking for substitution options.

On an ISM-hosted media briefing earlier today, Tim Fiore, Chair of the ISM’s Manufacturing Business Survey Committee, echoed that, saying that the biggest issues for manufacturing stakeholders are the effect of tariffs on supply chains and cost structures.

“Tariff concerns amounted to 65% of headline comments, the largest single issue since I’ve been tracking these kinds of attributes,” he said. “Continual Fed rate reductions were not cited as a concern this month, overshadowed by the tariff conversation. Production revenue was equivalent to the prior month’s performance, as panelist companies stabilized output. Growth i.e. demand has frozen due to the fiscal uncertainties expressed by Washington policy makers. Head count cuts continue as companies address uncertainties brought about by these new policies.”

Even with growth over the last two months, Fiore explained that the manufacturing economy appears to be struggling due to the tariff uncertainty, adding that 23% of manufacturing GDP is in contraction, down from 41% in January.

“More significantly, 2% of industries contributions are contracting at 44 or45 or less, which is down from 8% in January,” he said. So, the numbers a little bit weaker. But, overall, the manufacturing sector is relatively stabilized, but we’re dealing with uncertainty, which is flow in the order level, increased disagreements around supplier deliveries and at what price may have contributed to some of the inventory gain.”