US production is growing steadily in February and input prices are rising

U.S. manufacturing activity grew steadily in February, but a measure of the prices factories paid for raw materials rose to the highest level in nearly three-and-a-half years, underscoring upside risks to inflation amid tariffs even before a U.S.-led attack on Iran sent oil prices higher.The Institute for Supply Management said Monday that the manufacturing PMI was little changed at 52.4 last month, down from a reading of 52.6 in January. It was the second month in a row that the PMI rose above the ‌50 level, indicating expansion. Economists polled by Reuters had forecast the PMI would fall to 51.8.

The United States and Israel launched their most ambitious attacks on Iran in decades on Saturday, killing Supreme Leader Ayatollah Ali Khamenei. Oil and natural gas prices soared on Monday as Tehran’s strikes and retaliation forced the closure of oil and gas facilities across the Middle East and disrupted shipping in the crucial Strait of Hormuz.The recovery in factory activity in January, after 10 straight months in contraction territory, was attributed to post-holiday realignments and what the ISM described as purchases “to stay ahead of expected price increases due to ongoing tariff concerns.”

President Donald Trump’s broad tariffs have curbed manufacturing, which makes up 10.1% of the economy. The US Supreme Court last month struck down tariffs imposed by Trump under a law intended for use in national emergencies. However, Trump quickly imposed a 10% global tariff for 150 days to replace some emergency tariffs and then announced this would rise to 15%.

Amid gloomy tariffs, the technology components of manufacturing have been boosted by accelerated adoption of artificial intelligence and construction of data centers.

The sector has yet to experience the rebirth that Trump had in mind with his import duties. Manufacturing employment has fallen by 83,000 jobs since January 2025. Economists expect the tax law, which, among other things, made bonus write-offs permanent, will support production this year.

The forward-looking new orders sub-index from the ISM survey fell to 55.8 last month after rising to 57.1 in January, which was the highest level since February 2022. But order backlogs increased and exports remained stable.

Suppliers’ delivery performance continued to deteriorate. The survey’s supplier deliveries index rose to 55.1 from 54.4 in the previous month. A value above 50 indicates slower deliveries. As deliveries took longer, manufacturers faced higher prices for inputs.

Prices paid from the survey rose to 70.5 from 59.0 in January, the highest level since October 2022. The index also exceeded expectations for a rise to 60.0. The increase reflected a rise in prices of manufacturing goods, excluding food and energy, in January and suggested more tariff pass-through was on the way. Factory employment remained moderate.

The measure of manufacturing employment rose to 48.8 from 48.1 in January. The ISM noted that manufacturers were using layoffs and not filling open positions to manage workforces.