U.S. Manufacturing Activity Holds Expansion in February

U.S. manufacturing activity expanded in February for a second consecutive month, according to the latest report from the Institute for Supply Management (ISM). Growth continued to be supported by expanding new orders, production, and backlogs, even as employment remained in contraction and pricing pressures intensified sharply.

In this report, we'll explore the key metrics from the latest report, review ISM commentary, and see what manufacturers are saying about business conditions across the sector.

U.S. Manufacturing Activity Trends

The Manufacturing PMI registered 52.4 percent in February, down 0.2 percentage point from January’s reading of 52.6 percent. A reading above 50 percent indicates expansion in the manufacturing sector. The broader U.S. economy continued to expand for the 16th consecutive month.

February's Key Metrics at a Glance

New Orders Expanding, but Moderating:

The New Orders Index registered 55.8 percent, down 1.3 percentage points from January’s 57.1 percent, marking a second straight month of expansion.

Production Growing at a Slower Pace:

The Production Index registered 53.5 percent, 2.4 percentage points lower than January’s 55.9 percent, but remained in expansion territory.

Employment Still Contracting:

The Employment Index improved slightly to 48.8 percent, up 0.7 percentage point from January’s 48.1 percent, though it remained below the 50 percent threshold.

Prices Surge Higher:

The Prices Index jumped to 70.5 percent, up 11.5 percentage points from January’s 59 percent and the highest reading since June 2022, indicating sharply accelerating input cost pressures.

Backlog of Orders Accelerating:

The Backlog of Orders Index rose to 56.6 percent, up 5 percentage points from January’s 51.6 percent and the highest level since May 2022.

Supplier Deliveries Slowing Further:

The Supplier Deliveries Index registered 55.1 percent, up 0.7 percentage point from January’s 54.4 percent, indicating continued slower deliveries.

Inventories Contracting More Slowly:

The Inventories Index improved to 48.8 percent, up 1.2 percentage points from January’s 47.6 percent.

Customers’ Inventories Remain Too Low:

The Customers’ Inventories Index registered 38.8 percent, up slightly from January’s 38.7 percent, remaining in “too low” territory.

Exports Expanding:

The New Export Orders Index registered 50.3 percent, up 0.1 percentage point from January’s 50.2 percent.

Imports Growing Strongly:

The Imports Index rose to 54.9 percent, up 4.9 percentage points from January and the highest reading since February 2022.

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What Manufacturers Are Saying About Business Conditions

As manufacturing remained in expansion territory, executives described strengthening backlogs and improving order flow, offset by sharply rising prices and continued tariff-related cost pressures. Many respondents pointed to ongoing volatility in trade policy and metals pricing as key challenges.

Tariffs, Metals Pricing, and Cost Pressures

Tariffs and rising commodity costs remain a central concern across multiple industries.

From Transportation Equipment:
“Today, American produced commodities like steel and aluminum are the highest priced in the world, by far. Hence, the Section 232 tariff policy is having the exact opposite effect of their intention on an American manufacturer like us: It is raising prices while lowering demand and profitability.”

A Machinery respondent noted:
“Tariff policy changes affect total acquisition costs and purchasing source decisions. So far this year, tariff instability still exists. Due to the tariffs, most raw materials used in manufacturing, such as steel and wire, need to be sourced domestically, and the cost keeps going up.”

From Computer and Electronic Products:
“Continue to be impacted by tariffs. Seeing metals prices rise too. Business is steady, but domestic growth is slower than expected.”

Another respondent in the same sector added:
“Overall orders and supply footprint are improving. As we review customer demand, we are also taking several categories of established materials and supplies out to RFP for review and cost improvements — in particular, printed circuit assemblies, plastics, sheet metal assemblies and motorized assemblies.”

Demand Conditions and Backlog Strength

Despite pricing pressure, several executives reported improving backlog levels and steady order books.

A Fabricated Metal Products respondent shared:
“Business is improving by the week. Backlog is growing, and new opportunities are everywhere. Monthly shipments are still lower than planned, but improving.”

From Miscellaneous Manufacturing:
“Pricing for outside purchases has stabilized. We are spending significant effort to work with our supply base to mitigate tariff impacts. Backlog is at a healthy level.”

An Electrical Equipment, Appliances and Components respondent added:
“Business was slow in January. Many orders pulled into end of 2025 to meet revenue goals. Order book is strong going forward.”

Ongoing Uncertainty and Global Factors

Executives also pointed to geopolitical instability and regional economic softness.

A Chemical Products respondent said:
“Economic activity seems to be also challenging for this year. Some recovery in certain sectors in the economy but still lot of cost pressures and soft demand. Cost discipline is the priority.”

From Petroleum and Coal Products:
“South American instability has begun to be a factor for our suppliers and inventory management.”

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