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Manufacturing Sector Shows Signs of Slowdown Amid Rising Costs
Recent data released on Monday highlighted a downturn in the manufacturing sector for February, with rising costs and employment contraction reflecting the impact of President Donald Trump’s tariff policies.
The Institute for Supply Management’s manufacturing PMI reported a reading of 50.3 for February, a decrease from January’s score of 50.9. This figure also fell short of economists’ expectations of 50.7, indicating a potential contraction, as values above 50 suggest expansion within the sector while values below indicate a decline.
Significantly, the prices paid index recorded a notable increase, reaching 62.4—up from 54.9 in January and marking the highest level since July 2022. This surge suggests persistent cost increases for companies in the manufacturing space. Conversely, the employment index experienced a decline, dropping to 47.6, down from 50.3 the previous month, indicating a reduction in workforce hiring or retention.
The market reacted negatively to the news, with all three major stock indexes reaching their lowest points of the day post-release. The Nasdaq Composite (^IXIC) experienced the steepest drop, initially falling approximately 1% before recovering slightly.
Institute for Supply Management Chair Timothy Fiore commented on the report, noting, “Demand eased, production stabilized, and destaffing continued as panelists’ companies experience the first operational shock of the new administration’s tariff policy.” He attributed the increase in costs to tariffs imposed by the administration, which have led to new order backlogs and impacts on supplier deliveries and inventory management.
In a discussion with Yahoo Finance, Fiore connected the higher prices paid index directly to the 25% tariffs on imports of steel and aluminum. He explained, “The whole story here is really around the tariff issue,” emphasizing that these costs contribute to decreased new orders and could adversely affect hiring criteria. Should Trump follow through with proposed tariffs on Mexico and Canada, Fiore foresees further deterioration in the manufacturing landscape, predicting ongoing price hikes and a decline in manufacturing activity.
“If you maintain the current trajectory, it’s likely to be a challenging time for the U.S. economy,” Fiore cautioned.
Additionally, he noted that the ISM’s prices paid index has shown a close correlation with the monthly figures of the Consumer Price Index (CPI) and the Producer Price Index (PPI). This significant increase in the prices paid index is expected to translate into rises in both CPI and PPI figures for February, a concern highlighted by Thomas Ryan, an economist at Capital Economics North America. In a note to clients, he stated that the ISM’s findings “support our view that there will be a goods-driven resurgence in core inflation in the second half of the year.”
As the manufacturing sector navigates these challenges, the implications of ongoing tariff policies and rising costs remain to be fully understood, with potential ramifications for the broader U.S. economic landscape.
Source
finance.yahoo.com