Prices jumped to their highest levels since June 2022 as manufacturers navigate tariff and inflationary costs, according to the Institute for Supply Management’s latest Purchasing Managers’ Index report. Despite this surge, manufacturing continued to expand last month, driven by new order and backlog growth.
ISM’s index registered at 52.4% in February, a decline of 0.2 percentage points from January. A PMI index below 50% generally shows an industry in contraction.
Three of the organization’s four demand indicators — new orders, backlog of orders and new export orders — have been expanding since the start of 2026. New orders expanded across U.S. manufacturing in February, most notably in four of the “big six” sectors: computer and electronic products, chemical products, machinery and transportation equipment.
At the same time, customers’ inventories continued to be “too low,” according to the report. This is often a trigger for more orders and a signal for positive growth, Susan Spence, chair of ISM’s Manufacturing Business Survey Committee, said on a call with reporters Monday.
That is “what we believe happened this month,” Spence said about February’s results.
Demand sentiment has also improved among manufacturing executives surveyed for the report. For every two positive comments, there was one negative comment, Spence said. January had the same ratio, which is “certainly encouraging” following months of volatility fueled by tariffs.
Panelists’ comments around hiring versus headcount reduction also improved to a ratio of 1-to-1.4. While many executives are still citing tariffs for why they are not filling open roles, Spence said “it’s a more positive trend than we have seen” and the best ratio since May 2025.
The “biggest alarm” in the report was the prices index, Spence said. It registered at 70.5% in February, an increase of 11.5 percentage points compared to the previous month. The biggest drivers were increased steel and aluminum prices and tariffs that affected the entire value chain.
Overall, Spence said she was encouraged by the latest results. However, the Supreme Court’s ruling could create more uncertainty. ISM collected its February survey data before the court negated the president’s sweeping tariffs authorized under the International Emergency Economic Powers Act.
Spence said she is hopeful that the ruling could “shake loose” additional customer orders, but “we’re going to continue to be cautious” as the administration looks to replace the IEEPA tariffs using other authorities.
More uncertainty could be ahead following the recent U.S.-Israeli strikes against Iran over the weekend. The attacks have disrupted the flow of oil tankers traveling through the Strait of Hormuz, a critical sea passage and maritime choke point, the New York Times reported. As a result of shipping delays and suspensions, U.S. crude prices surged more than 12% on Monday, underscoring the economic risks of an escalating conflict in the Middle East.
When asked about the possibility of higher prices in March, Spence said “I wouldn’t be surprised.”
“Supply managers have yet another challenge on their hands,” she said. “This points to the need to really risk rate all your categories, understand where you’re getting supplies from, and whether it’s a pandemic or war or some other weather event or political event, we’re going to continue to encourage folks to play the worst case scenario in the planning and hopefully weather the storm.”
The “big six” categories, which also comprise petroleum and coal, as well as food, beverage and tobacco products, make up 72% of the sector’s gross domestic product.
S&P Global’s U.S. manufacturing PMI saw continued growth across the industry at 51.6%, but noted that it was the weakest in the past seven months. This was driven by softer rises in output and new orders as exports faltered.
“Businesses were often disrupted by extreme weather, which has clouded insights into the underlying strength of economic growth,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement. “We may see some rebound once the weather clears,” noting improved optimism from manufacturers.
However, he added that uncertainty around tariffs could persist in the coming months as cost inflation remains elevated.
