The latest ISM manufacturing data from the U.S. has delivered a major blow to markets. The figures came in weaker than expected, with new orders plummeting while the price index surged significantly, fueling concerns over rising inflation. As a result, stock indices on Wall Street declined, with the Nasdaq suffering the most. Bitcoin erased nearly $4,500 from its recent highs and is now struggling to hold the $90,000 zone. Earlier, economic data from Europe was also released.
Key ISM Manufacturing Data:
- February ISM Manufacturing Index: 50.3 (Forecast: 50.7, Previous: 50.9)
- Prices Paid Index: 62.4 (Forecast: 56, Previous: 54.9)
- Employment Index: 47.6 (Forecast: 50.1, Previous: 50.3)
- New Orders Index: 48.6 (Forecast: 54.6, Previous: 55.1)
- Construction Spending: -0.2% m/m (Forecast: 0.1%, January: 0.5%)
The ISM manufacturing index dropped to 50.3% in February, a 0.6 percentage point decline from January’s 50.9%. The U.S. economy has now been expanding for 58 consecutive months, following a brief contraction in April 2020. However, the new orders index slipped back into contraction territory after three months of expansion.
The production index fell by 1.8 percentage points from January, though it has risen for two consecutive months following eight months of declines. The most alarming statistic was the sharp increase in the prices paid index, which surged to 62.4%—a staggering 7.5 percentage point jump from January. This highlights growing inflationary risks not just in the services sector but also in manufacturing. Even though new tariffs are set to take effect in mid-March, raw material prices have already surged by approximately 20%.
Market Reactions & Economic Impact The data suggests weakening demand, stabilizing production, and continued job cuts as companies grapple with the first operational impact of the new administration’s tariff policies. Rising prices due to tariffs have also led to order delays, supply chain disruptions, and inventory fluctuations.
U.S. manufacturing activity grew slightly for the second consecutive month in February, following 26 months of contraction. However, signs of weakening demand remain evident, with new orders slipping into contraction, export orders growing at a slower pace, and backlogs and inventories declining.
Industries with Growth in February:
- Petroleum and coal products
- Miscellaneous manufacturing
- Primary metals
- Wood products
- Food, beverage, and tobacco products
- Electrical equipment and appliances
- Chemicals
- Plastics and rubber products
- Fabricated metal products
- Transportation equipment
Industries in Decline:
- Furniture and related products
- Textile mills
- Nonmetallic mineral products
- Computer and electronic products
- Machinery
Final U.S. S&P Manufacturing PMI: 52.7 (Forecast: 51.6, January: 51.6)
Economist Insights: U.S. S&P Chief Economist Williamson commented: “Although industrial production increased at its fastest pace since May 2022 and new orders showed the strongest growth in a year, many indicators suggest this improvement may be short-lived. The rise in the PMI index to a 32-month high signals an apparent recovery in the manufacturing sector, but it could be superficial.”
The ISM data appears to contradict the PMI reading, but historically, ISM has been a more reliable indicator of the true state of the U.S. economy.
Corporate Reactions to the Economic Data
- Chemical Industry: “Tariff policies concerning products from Mexico and Canada have created uncertainty and volatility among our customers while increasing our exposure to retaliatory measures.”
- Transportation Equipment: “Customers are holding off on new orders due to tariff-related uncertainty. The administration has not provided clear guidance on implementation, making it difficult to forecast business impact.”
- Computers & Electronics: “Tariffs have had minimal direct impact on production and raw material deliveries. However, U.S. government budget cuts in key agencies such as the FDA, EPA, and NIH are causing delays in fulfilling some orders.”
- Food & Beverage Industry: “Inflation and pricing pressures continue to introduce uncertainty into our 2025 outlook. Sales volumes are declining as customers opt for lower-cost alternatives.”
- Machinery Sector: “Upcoming tariffs are driving up product prices. Suppliers are raising costs, often citing rising labor expenses and production capacity constraints. Inflationary pressure remains a serious concern.”
Further Industry Comments:
- Structural Metal Products: “Business remains slow, but we’re seeing early signs of demand improvement in the next six to nine months. Steel and scrap costs are rising, but it’s too early to determine the full impact.”
- Electrical Equipment: “New orders remain strong following the December rebound. However, tariff uncertainty makes us cautious with spending despite high current sales.”
- Nonmetallic Mineral Products: “Management has requested an impact analysis of tariffs within 24 hours, despite relying on speculative variables. We are living in unpredictable times.”
- Plastics & Rubber Products: “Internal tariff impact analysis is ongoing, but we have no firm conclusions yet. The overall business environment is lackluster, and durable goods prospects are worsening due to rising domestic automotive inventories.”
- Basic Metals: “Order volumes are better than in 2024, but customers remain hesitant to commit to long-term contracts due to market uncertainty over proposed steel and aluminum tariffs.”
The question now is whether these trends signal the beginning of a prolonged downturn or merely a temporary slowdown. One thing is certain—markets are on edge, and investors will be closely watching the next round of economic data.
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