Coming off of its first month of growth in 12 months in January, manufacturing output remained on the right side of growth again in February, according to the new edition of the Manufacturing Report on Business, which was issued today by the Institute for Supply Management (ISM).
The report’s benchmark reading, the PMI, came in at 52.4 (a reading higher than 50 indicates growth), down 0.2% compared to January’s 52.6 reading, which marked a 4.7% gain over December, and represented the first positive PMI reading since a 50.0 reading in February 2025, with the overall economy growing, at a faster rate, for the 16th consecutive month.
The February PMI was 3.1% above the 12-month average of 49.3, with January’s 52.6 and December’s 47.9 marking the respective high and lows for that period.
ISM reported that 12 manufacturing sectors—Printing & Related Support Activities; Textile Mills; Primary Metals; Nonmetallic Mineral Products; Chemical Products; Machinery; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Transportation Equipment; Plastics & Rubber Products; Miscellaneous Manufacturing; and Computer & Electronic Products—saw growth in February. The five industries seeing contraction were: Apparel, Leather & Allied Products; Furniture & Related Products; Petroleum & Coal Products; Wood Products; and Food, Beverage & Tobacco Products.
ISM cited the following for the report’s key metrics in January:
- New Orders, at 55.8. fell 1.3%, to 55.8, growing, at a slower pace, for the second consecutive month, following January’s 57.1, its highest reading since a February 2022 59.7 reading (prior to January the metric had not seen consistent growth since a 24-month stretch of growth ended in May 2022), with 12 sectors reporting growth in February;
- Production, at 53.5, decreased 2.4% from January’s 55.9 reading, its highest reading since February 2022’s 58.1, growing, at a slower rate, for the fourth consecutive month, with nine sectors reporting growth;
- Employment, at 48.8, rose 0.7%, contracting, at a slower rate, for the 29th consecutive month, down for 37 of the last 38 months, with seven sectors reporting growth;
- Supplier Deliveries, at 55.1 (a reading over 50 indicates slower deliveries), were up 0.7% compared to January, slowing, at a faster rate, for the third consecutive month, with 11 sectors reporting slower deliveries;
- Inventories, at 48.8, rose 1.2%, contracting, at a slower rate, for the 10th consecutive month with nine sectors reporting gains;
- Customers’ Inventories, at 38.8, were down 0.1%, coming in too low, at a slower rate, for the 17th consecutive month; and
- Prices, at 70.5, were up 11.5%, increasing, at a faster rate, for the 17th consecutive month, with 14 sectors reporting higher prices, hitting its highest reading since June 2022’s 78.5 reading
Tariffs and the economy were once again the main themes cited in ISM panelists’ comments.
“Today, American produced commodities like steel and aluminum are the highest priced in the world, by far,” said a Transportation Equipment panelist. “Hence, the Section 232 tariff policy is having the exact opposite effect of their intention on an American manufacturer like us: It is raising prices while lowering demand and profitability.”
A Computer & Electronic Products panelist observed that overall orders and supply footprint are improving.
“As we review customer demand, we are also taking several categories of established materials and supplies out to RFP for review and cost improvements — in particular, printed circuit assemblies, plastics, sheet metal assemblies and motorized assemblies,” the panelist said. “This will help ease the burden of tariff and customer impacts as we broaden our supplier base to a more regional footprint.”
In an interview with LM, Susan Spence, Chair of the ISM’s Manufacturing Business Survey Committee, said it was good to see the PMI remain in growth mode, albeit by a slim margin.
“There were two positive comments in the report for each negative one, which is good,” she said. “For Employment, for every person hiring, there was 1.4 that are not, which is its best reading sine last summer. Most indications are good, with the Prices reading being a huge leap. That was anticipated but you need to look at what happened. Was it tariffs or customer orders, which had to happen [for the latter] because inventories go so low? We have two months of New Orders and Imports [up 4.9%, to 54.9] being up, so that could be the tariff impact finally.”
As for the Supreme Court’s recent decision ruling against the legality of President Trump’s implementation of IEEPA tariffs, which was subsequently replaced by 10% global Section 122 tariffs for a 150-day period, Spence noted that where things go from here require a watchful eye.
As an example, she said that current steep steel and aluminum tariffs, at 50%, are hurting manufacturers, coupled with various other commodities, up in price.
“Which industries will continue to get beat up for that? And if this is going to be even more emphasis on Section 232 tariffs that are focused a threat to national security, at one point are the international customers saying it is great to tell the administration it can’t do whatever it wants— but it has another way of doing it, and it’s just going to be more of the same chaos,” she said. “They going to continue to go find other places to buy our stuff from. Perhaps there is an increase in New Orders because there’s just nowhere for these other manufacturers to go for now, but eventually, maybe they will. That’s what I worry about. I like to think it pays to be paranoid sometimes and worry about that, and then for our purchasing managers who are facing the same increases, whether it’s from a domestic producer or someone they have to import from that’s been slapped with a tariff it is a question of how are we going to preserve our margin and keep the input prices?”
As for the United States and Israel launching a joint attack on Iran over the weekend, in terms of its impact on manufacturing, Spence said that it is too soon to say if the effort will be prolonged.
The big question for manufacturing related to this conflict, according to Spence, is the direction of oil prices, as well as other logistics-related impacts in and around the Red Sea and Strat of Hormuz, on top of global trade and tariffs and other economic issues, too.
“Is it going to be like the pandemic, where we got a couple years of just, real uncomfortableness? We don’t know yet,” she said. “You need to look at political, economic, societal, technological, legal and environmental risk all the time and make sure it informs your sourcing strategy, because there are some things that you can only go to one place for, and then there’s others where if you have only one source for something, or two sources, then you got to be able to wait out a conflict and not run out of stuff. You can carry two months of supplies on the shelf, because over time, you can’t have your factories go quiet because you don’t have the stuff. People think about that when these types of things happen.”
Looking at the state of manufacturing through the first two months of 2026, Spence said that conditions are strong overall, amid tariffs and the Middle East conflict.
“We are still strong and hopefully things calm down, as it relates to policies and the conflict, but those things come and go and are always going to be there unfortunately,” she said. “How resilient industries are has a lot to do with how much they have thought about what they will do when something bad happens. Overall sentiment from our panelists is good, which has not been the case since last spring.”
