The February U.S. ISM manufacturing PMI fell from 50.9 to 50.3, short of expectations at 50.6, as businesses adjusted to tariffs uncertainty.
Despite overall expansion, the report indicates underlying weakness in manufacturing demand. The sharp declines in new orders and employment suggest businesses are approaching the current environment with caution amid global trade jitters.
Key Takeaways:
- Manufacturing PMI remained in expansion territory (above 50%) for the second month after 26 consecutive months of contraction
- New orders dropped into contraction territory at 48.6%, down significantly from 55.1% in January
- Employment fell to 47.6%, declining 2.7 percentage points from January’s reading of 50.3%
- Prices index surged further into expansion territory at 62.4%, up 7.5 percentage points from January
- Six largest manufacturing industries showed mixed performance, with four reporting growth
The prices index jumped to 62.4%, indicating that manufacturers are already factoring higher costs into their planning before tariffs officially take effect in mid-March. According to the report, spot commodity prices have already risen approximately 20% in anticipation of the changes.
Of the 18 manufacturing industries tracked by ISM, 10 reported growth in February, including Petroleum & Coal Products, Primary Metals, and Chemical Products, while five industries reported contraction.
Link to official U.S. ISM Manufacturing PMI (February 2025)
“Demand weakened, while output stabilized and inputs, for the first time in several months, contributed to PMI growth,” said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.
Still, companies expressed widespread concerns about the impact of potential tariffs, with uncertainty regarding implementation causing some customers to pause orders while businesses scramble to assess potential effects on their supply chains and pricing structures.
Multiple survey respondents specifically mentioned tariff concerns. A respondent from the Chemical Products industry noted, “The tariff environment regarding products from Mexico and Canada has created uncertainty and volatility among our customers and increased our exposure to retaliatory measures from these countries.”
Market Reaction
U.S. Dollar vs. Major Currencies: 5-min
Overlay of USD vs. Major Currencies Chart by TradingView
The U.S. dollar, which was already edging lower leading up to the ISM PMI release, weakened further against most major currencies following the release of the disappointing manufacturing data.
USD sustained its losses versus fellow lower-yielding currencies CHF (-0.50%) and JPY (-0.49%), although it rebounded against CAD (+0.03%) and slightly against other commodity currencies a few hours after the report was released.