U.S. manufacturing activity expanded in February, but rising input costs signaled growing inflation pressures across the sector. Companies pointed to the impact of President Donald Trump’s tariff policies as a key driver behind higher prices.
The Institute for Supply Management (ISM) said its Manufacturing Purchasing Managers’ Index (PMI) came in at 52.4 last month. The reading remained above the 50 threshold that signals expansion and exceeded market expectations of 51.7. In January, the PMI stood slightly higher at 52.6.
Despite the headline expansion, analysts described the underlying details as less encouraging. Economists at Vital Knowledge noted that the overall report carried a “net negative” tone, largely due to a sharp rise in cost pressures.
Input prices jump to multi-year high
The prices paid index surged by 11.5 points month over month to 70.5. This marked the highest level since June 2022 and followed a similarly strong producer price index report released last week. The spike suggests that inflationary pressures are intensifying within the manufacturing sector.
Higher input costs often raise concerns about margin compression for businesses and the potential for further price increases for consumers.
Tariffs remain a major concern
President Donald Trump’s tariff agenda was a central theme in the ISM survey responses. Trade policy has remained uncertain since a Supreme Court ruling in February found that the president’s use of emergency economic powers to impose certain “reciprocal” tariffs was unlawful.
In response, the White House introduced temporary tariff measures while maintaining other previously implemented duties, including tariffs on steel and aluminum under Section 232 of the Trade Expansion Act of 1962.
Survey participants highlighted the direct impact of these trade policies. One respondent noted that American-produced commodities such as steel and aluminum are currently among the most expensive globally. The same respondent argued that the Section 232 tariffs are producing unintended consequences, raising prices while reducing demand and profitability for domestic manufacturers.
Overall, while U.S. manufacturing continues to expand, rising input prices and tariff-related cost pressures are creating new challenges for businesses and could complicate the broader inflation outlook.
