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WASHINGTON, D.C. — US manufacturing was steady in February, but a measure of prices at the factory gate jumped to nearly a three-year high and it took longer for materials to be delivered, suggesting that tariffs on imports could soon undercut production.
Worries about duties on imports dominated commentary from manufacturers in the Institute for Supply Management (ISM) survey on Monday, with most saying the tariffs being pushed by President Donald Trump against trading partners such as Canada, Mexico and China had created an uncertain operating environment.
Coming on the heels of weak consumer spending, a surge in the goods trade deficit and a decline in homebuilding in January, the survey reinforced views that the economy lost significant momentum early in the first quarter. Some economists are expecting a gross domestic product contraction this quarter.
Trump was expected to decide on Monday what levels of tariffs he would impose early on Tuesday on Canada and Mexico.
“Clearly, tariffs will impact the manufacturing sector harder than the overall economy, but the prospect of sharp tariff hikes is clearly going to be bad for the economy, and the unpredictability on this issue over the last few months makes things even worse,” said Stephen Stanley, chief US economist, Santander US Capital Markets.
The ISM’s manufacturing PMI slipped to 50.3 last month from 50.9 in January, which marked the first expansion since October 2022 and likely reflected factories’ front-loading imports to beat tariffs. A PMI reading above 50 indicates growth in the manufacturing sector, which accounts for 10.3 percent of the economy.
Economists polled by Reuters had forecast the PMI would ease to 50.8. Production at factories nearly stalled after rebounding in the prior month. The dip in the PMI mirrored declines in other sentiment measures as the Trump administration pushes ahead with its plan to ratchet up tariffs on imported goods.
Domestic manufacturers rely heavily on imported raw materials. Analysts have warned of financial fallout for US automakers and other companies that manufacture vehicles in Mexico and Canada, and sell them in the United States. Other duties aimed at imported steel, aluminum and motor vehicles will either soon go into effect or are in fast-track development.
Manufacturing only just started recovering after a prolonged downturn triggered by the Federal Reserve’s aggressive monetary policy tightening in 2022 and 2023 to tame inflation. Concerns that tariffs will raise prices contributed to the US central bank’s decision to pause its interest rate cuts in January.
Ten industries, including miscellaneous manufacturing, primary metals, wood products and transportation equipment reported growth last month. Among the five industries reporting contraction were furniture and related products, machinery as well as computer and electronic products.
Stocks on Wall Street were trading lower. The dollar was weaker against a basket of currencies. US Treasury yields fell.
Some manufacturers of chemical products reported that “the tariff environment regarding products from Mexico and Canada has created uncertainty and volatility among our customers and increased our exposure to retaliatory measures from these countries.
Similar sentiments were echoed by makers of transportation equipment who noted that customers were pausing new orders.
Makers of primary metals said while customer volumes appeared to be better than 2024, “customers are still very hesitant to commit to long-term volumes due to the market uncertainty caused by proposed tariffs on steel and aluminum imports.”
Some in the computer and electronic products industry said government spending limits on agencies like the Food and Drug Administration, Environmental Protection Agency and National Institutes of Health were delaying some orders.
The ISM survey’s forward-looking new orders subindex slumped to 48.6 last month from 55.1 in January. Its measure of prices paid by manufacturers for inputs surged to 62.4, the highest reading since June 2022. It topped a forecast of 55.8 and was up from 54.9 in January. That suggests goods prices could continue to rise after increasing by the most in 11 months in January.
“This supports our view that there will be a goods-driven resurgence in core inflation in the second half of the year,” said Thomas Ryan, North America economist at Capital Economics.
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Credit belongs to : www.manilatimes.net
