By Juan Lasso
Manufacturing activity dipped in February and now teeters on the brink of contraction as a haze of tariff uncertainty and cautious business sentiment fuels fears of stagnation.
The Institute for Supply Management said Monday that its purchasing manager’s index of manufacturing activity was 50.3 in February, falling from 50.9 at the start of the year. Any reading over the 50 no-change mark signals growth. After 26 consecutive months of sleepy contraction, manufacturing showed brief signs of life in January, but that slight bump in confidence has quickly vanished as the index turns downward again.
As a bellwether for the broader economy, the manufacturing downturn serves as an early signal that overall economic growth is losing steam. John Herrmann, president and founder at Herrmann Forecasting LLC, said manufacturers are pointing to one common culprit: uncertainty around tariffs.
“It’s front and center of companies’ concerns,” said Herrmann. “Companies are asking how long the tariffs will be in place? What will be the retaliation? As a result, they don’t produce as much as they normally would, which is inflationary.”
There is striking evidence of weakening demand. Gauges like new orders, which rose in January to its highest level in nearly three years, dipped into contractionary territory. This is the steepest single-month decline in the past four years. Growth in new export orders and factory output has slowed, with manufacturers hitting pause on added production amid market uncertainty.
Business volatility has weighed heavily on manufacturing companies scrambling to dampen the costs of President Donald Trump’s blunt and unpredictable tariff war against the United States’ largest trading partners.
At the start of February, Trump threatened to impose sweeping 25% tariffs on Canada and Mexico, only to suddenly push the clock forward to March 4. Dashing investors’ hopes, Trump went through with the trade levies. Meanwhile, Chinese imports were slapped with a 10% tariff.
In the wake of these levy fights, the price subindex, which tracks raw material costs, jumped nearly 14% — something not seen since the tail end of the pandemic. Herrmann said that the growth in new orders and imports seen in January was driven partly by manufacturers making advance purchases to dodge possible tariff-induced price hikes and supply chain disruptions.
“In January, businesses were concerned about potential tariff disruptions and rushed to get their imports before tariffs kicked in,” said Herrmann. “The ones who hesitated to get their inputs are struggling.”
Now, with no clear end in sight to the “tit-for-tat” tariff battle, companies are largely left second-guessing their next moves. That shaky business footing can stall long-term manufacturing investments, forecasters warn. Supply delivery speeds have already slowed partly because of a swell in advanced orders. Herrmann says this piles pressure onto normal production schedules, creating vulnerabilities at every stage of the manufacturing process.
Strain on manufacturing also coincided with sliding investor confidence. U.S. consumer sentiment abruptly plunged to a seven-month low in February, with the University of Michigan’s Consumer Sentiment Index dropping to 67.8, from 71.1 at the start of the year. The stock market also took a hit, with the S&P 500 tumbling 1.76%, its worst performance since December.
Yet, despite higher raw material costs and widespread market jitters, most manufacturing industries still reported modest growth in February. Sectors like petroleum, metals, food, and chemicals have expanded and are weathering economic strain, at least for now.
“We have several massive investment projects lined up, including the $500 billion Stargate Project in Texas, focused on upgrading AI infrastructure and databases,” Mike Englund, chief economist at Action Economics said.
Conversely, automakers—heavily reliant on free trade with Canada and Mexico for vehicle bodies and parts—face massive losses. Some, Englund said, have likely scrambled to stockpile inventory parts in anticipation of price disruptions. Despite companies urging Trump to reconsider import fees, their warnings of economic turmoil have proven eerily accurate.