The manufacturing sector started the new year with renewed expansion, as the S&P Global US Manufacturing PMI™ rose to 51.2 in January from 49.4 The U.S. manufacturing sector grew at its fastest rate since June 2022 in February. The S&P Global U.S. Manufacturing PMI rose for a second straight month to 52.7, exceeding the 51.6 forecast. However, the improvement may be short lived as last month's expansion was partially driven by advanced purchases ahead of likely price increases and tariff-related disruptions in the coming months.
Here is an excerpt from Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, in the latest press release:
“A rise in the PMI to a 32-month high signals an improvement in the health of the manufacturing sector which may only be skin deep.
“Although manufacturing production grew at the strongest rates since May 2022 and new orders increased at the best pace in a year, there’s much to suggest that this improvement could be short lived. Production and purchasing were often buoyed by companies and their customers building inventory to beat price hikes and supply issues caused by tariffs. Exports have meanwhile slumped and supplier delivery delays were the most common since October 2022 amid disruptions to trade caused by tariff worries.
“Business optimism about the year ahead has consequently fallen compared to the buoyant mood evident in January, with February seeing an increase in the number of companies citing concerns over tariffs and other policies introduced by the new Trump administration.
“Worries have noticeably swelled in relation to the inflationary impact of tariffs, which were widely reported as having caused factory input costs to spike higher in February. These higher costs are being passed on to customers, resulting in the strongest factory gate price inflation recorded for two years, which manufacturers fear may in turn not only damage sales in the coming months but also encourage the Fed to take a more hawkish view of inflation.”
Background on the S&P Global US Manufacturing PMI
The S&P Global US Manufacturing PMI™ measures the activity level of purchasing mangers in the manufacturing sector through a questionnaire of ~600 manufacturers. The reported headline number is a weighted average of New Orders (30%), Output (25%), Employment (20%), Suppliers' Delivery Time (15%), and Stocks of Purchases (10%). The S&P Manufacturing PMI is a diffusion index, meaning that a reading above 50 indicates expansion in the sector compared to the previous month and a reading below 50 indicates contraction.
