Economic Data and Growth

In February, Texas factory activity improved after expanding the prior month. The production index increased from 11.2 to 12.5, remaining above the series average of 9.6. The new orders index ticked down 0.7 points to 11.1, while the capacity utilization index stepped up 4.7 points to 11.8. Meanwhile, the shipments index decreased 2.1 points to 9.9. The Eleventh District consists of all of Texas, northern Louisiana and southern New Mexico.

Perceptions of manufacturing business conditions strengthened in February, with the general business activity index rising 1.4 points to 0.2. At the same time, the company outlook index inched up 0.2 points to 3.1. On the other hand, the uncertainty index increased 1.7 points to 6.5 but remained below the series average of 16.8.

Labor market indicators suggested weaker growth in headcounts and a longer workweek in February, with the employment index edging down 0.7 points to 7.5 and the hours worked index rising 5.4 points to 6.1. Nearly 18.0% of firms reported net hiring, while a smaller percentage (10.5%) noted net layoffs.

Price pressures weakened slightly, while wage pressures accelerated in February. The prices paid for raw materials index declined 5.4 points to 31.7. Meanwhile, the prices received for finished goods index ticked down 0.6 points to 17.9 but remained far higher than the series average. The wages and benefits index jumped 14.5 points to 31.9, rising above the series average of 21.0.

The outlook for future manufacturing activity weakened in February, despite the future production index improving 5.1 points to 34.3. Moreover, the future company outlook index moved up 2.5 points to 25.7, while the future general business activity declined 3.9 points to 12.7, remaining above the series average.

New orders for manufactured goods decreased 0.7% in December following a 2.7% increase in November. Meanwhile, new orders for manufactured goods grew 3.7% over the year. When excluding transportation, new orders inched up 0.4% over the month and 0.9% year-over-year in December. Orders for durable goods declined 1.4% following a 5.4% rise in November. Year to date, durable goods orders jumped 7.8%. Nondurable goods orders stayed the same in December after ticking down 0.1% in November. Nondurable goods orders decreased 0.3% over the year.

New orders for nondefense aircraft and parts led the decrease in durable goods orders, falling 24.8% following November’s 98.2% surge. In December, the largest monthly increase occurred in defense search and navigation equipment, which climbed 26.9% after declining 8.7% in November. The largest over-the-year changes occurred in nondefense aircraft and parts (up 106.2%) and photographic equipment (down 5.4%).

Factory shipments rose 0.5% in December after edging down 0.2% in November. Shipments over the year grew 1.7%. Shipments excluding transportation increased 0.4% in December following a 0.1% gain the previous month. Shipments for durable goods moved up 1.0% following a 0.3% decline in November and are up 3.7% year to date. Meanwhile, nondurable goods shipments stayed the same after ticking down 0.1% the prior month, and have declined 0.3% year to date.

Unfilled orders for all manufacturing industries increased 0.9% in December after rising 1.4% in November. Unfilled orders over the year jumped 10.3%. Inventories stepped up 0.9% year-over-year. The inventories-to-shipments ratio edged down from 1.57 to 1.56 in December. Meanwhile, the unfilled orders-to-shipments ratio for durable goods moved down to 7.01 from 7.04 in November.

PHOENIX – Following the announcement of the United States military operations in Iran, National Association of Manufacturers President and CEO Jay Timmons released the following statement:

“Manufacturers in the United States have always stood ready when our nation calls. From serving as the Arsenal of Democracy to equipping those who defend freedom today, our industry has the capacity to support U.S. objectives across multiple theaters and sustained operations. Today, manufacturers honor the courage and commitment of the men and women in uniform who stand watch and carry out this mission.

“Since November 4, 1979, the United States has endured hostility and terrorism from a rogue government in Tehran. Time and again, the Iranian regime has sponsored international terrorism, destabilized its region, violated the rights of its own people and disrupted legitimate commerce and maritime security.

“Through Operation Epic Fury, President Trump has initiated major combat operations with these stated objectives:

• Eliminating imminent threats posed by the regime,
• Preventing Iran from developing nuclear weapons,
• Neutralizing military infrastructure that threatens regional and global security,
• Countering destabilizing regional aggression, and
• Supporting the Iranian people’s right to determine their own future.

“At moments of consequence, national unity matters. Congress should fully engage to ensure clarity of mission, alignment of authority and the sustained support of the American people.

“We also call upon allied governments and partner business associations around the globe to stand together to protect regional stability, safeguard global commerce and reinforce the collective resolve that keeps peace through credible strength.

“When security, commerce and liberty are threatened, the United States must lead with strength, resolve and the support of its people.”

-NAM- 

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs nearly 13 million men and women, contributes $2.95 trillion to the U.S. economy annually and accounts for 53% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org. 

Building permits increased 4.3% in December but fell 2.2% over the year. Permits for single-family homes in December decreased 1.7% and 10.9% over the year. On the other hand, permits for buildings with five or more units surged 18.1% from November and 18.7% over the year.

In December, housing starts rose 6.2% from November but declined 7.3% over the year. Starts for single-family homes moved up 4.1% from November but dropped 9.0% over the year. Meanwhile, starts for buildings with five or more units jumped 10.1% over the month but fell 1.0% over the year.

Housing completions increased 2.3% over the month but ticked down 0.1% over the year. Single-family home completions edged down 0.1% from November but surged 10.2% from December 2024. At the same time, completions for buildings with five or more units rose 7.1% over the month but plummeted 15.9% from one year ago.

Manufacturing activity in New York state increased but at a slightly slower pace in February, with the headline business conditions index edging down 0.6 points to 7.1. The new orders index similarly ticked down but remained positive, decreasing 0.8 points to 5.8, while the shipments index plummeted 17.3 points to -1.0. Unfilled orders turned positive, surging 17.3 points to 9.1, while inventories rose 9.2 points to 7.1, indicating business inventories are growing again. Delivery times lengthened, and supply availability improved but remained negative, increasing 3.1 points to -1.0.

Employment increased in February, with the index for the number of employees rising 13.0 points to 4.0. At the same time, the average employee workweek index grew to 2.1 from -5.4, signaling an increase in hours worked from January. The prices paid index moved up 6.3 points to 49.1, while the prices received index rose 7.8 points to 22.2, reflecting a faster pace of increase in both prices received and prices paid.

In February, firms’ optimism regarding the future remained high, with the future business activity index advancing 4.4 points to 34.7. In the next six months, new orders are expected to rise and at a slightly faster pace compared to the prior month at 34.9. The future employment index jumped 11.2 points to 26.1, suggesting an anticipated faster pace of employment growth over the next six months. Meanwhile, input and selling price expectations are forecasted to increase at a faster pace, increasing from 52.6 to 57.6 and from 36.5 to 40.3, respectively. Furthermore, capital spending plans strengthened from January, up from 10.3 to 18.2.

In February, Philadelphia’s regional manufacturing activity expanded for the second consecutive month to its highest level since September, with the index for general business activity advancing from 12.6 to 16.3. This month, 31.0% of firms reported increases in activity, while 14.7% of firms noted decreases. The indexes for new orders and shipments fell, moving from 14.4 to 11.7 and from 9.5 to 0.3, respectively. Meanwhile, the employment index turned negative for the first time since June, falling 11.0 points, as the average employee workweek plunged 20.7 points to -11.6.

The prices paid index declined from 46.9 to 38.9, its lowest reading since January 2025, while the prices received index fell from 27.8 to 16.7, its lowest reading since December 2024. As has been the case for many months, the prices received index remained lower than the prices paid index, indicating that manufacturers have been absorbing a portion of higher costs paid.

Looking ahead, indicators showing expectations for future growth grew after two months of declines. After falling 12.6 points in January, expectations for future business activity soared 17.3 points to 42.8 in February. The rise came from an increase in the proportion of firms expecting an increase in activity (52.0%). At the same time, the number of firms anticipating a decrease in activity (9.2%) was virtually unchanged in February. The future new orders index rose from 32.9 to 54.1, its highest reading since November 2024, and the future shipments index moved up from 40.8 to 47.4. On the other hand, the capital expenditures index fell from 30.3 to 14.4, its lowest reading since September. The future prices paid and prices received indexes declined from 66.6 to 54.1 and from 61.8 to 50.1, respectively. Additionally, the index for future employment stepped down from 28.8 to 14.9.

In February, firms were asked about changes in core customer price sensitivity and anticipated cost changes. Of those responses, 30.8% of firms view core customers as more price sensitive since last quarter. Meanwhile, 39.1% of firms expect price changes in their industry’s costs, while 60.9% do not. When asked how they anticipate competitors to respond, 77.8% expect them to raise prices in the near term, while none believe they will lower prices. When asked, 58.3% of firms said they have experienced a net negative impact from tariffs over the past year, but 16.7% have seen a net positive impact. Looking forward, 46.2% expect a net negative impact over the next year from tariffs, while 15.4% predict a net positive impact.

The S&P Global Flash U.S. Manufacturing PMI fell from 52.4 to 51.2 in February, a seven-month low, although it remained positive. This continued the trend of seven consecutive months of growth, but marked the weakest advancement seen during that period. Factory production and new order growth both decreased in February, with production exhibiting its weakest growth since July. Meanwhile, export orders declined for the sixth consecutive month, which was due partially to adverse weather.

Inventories decreased in February as the stock of finished goods fell for the first time since July and at the sharpest rate in 13 months. At the same time, supplier delivery times lengthened to the greatest extent since October 2022, with respondents linking the increase to supplier delays, shortages and poor weather. Manufacturers’ input cost inflation ticked higher and continued to remain high by historical norms. Meanwhile, selling price inflation moderated to a 14-month low, resulting from increasing discounts to boost sales. Overall, price increases slowed for manufacturers but accelerated for the service industry.

Overall business activity declined to a 10-month low, edging down from 53.0 in January to 52.3 in February. In addition to manufacturing growth slowing, the growth rate in the services sector also moderated, falling to a 10-month low. Overall, new orders growth cooled as companies cited high prices hurting sales. Employment rose only slightly due to sluggish sales and concerns over rising costs.

On the other hand, optimism about future business conditions jumped in February to a 13-month high. The optimism reflected expectations for improving economic conditions and a boost after frigid weather lets up. In addition, companies expressed hope for greater policy support, including lower interest rates and government fiscal stimulus.

Industrial production increased 0.7% in January, while manufacturing output rose 0.6% after staying the same in December. At 97.5% of its 2017 average, manufacturing production advanced 2.4% from January 2025. Capacity utilization for manufacturing was 75.6%, up 0.4 percentage points from December and 1.1% over the past year. Capacity utilization remained 2.6 percentage points below its long-term average from 1972 to 2025.

In January, all major market groups posted gains. Consumer goods production grew 0.7%, while business equipment output increased 0.9%. The gain in production of consumer durables (up 0.5%) was led by home electronics’ output rising 2.8%. Meanwhile, the index for consumer nondurables stepped up 0.7%, experiencing gains in all but two of its categories. Among business equipment, the 1.2% gain in the index for industrial or other equipment led the increase. At the same time, the index for materials improved 0.6%, while the index for construction supplies moved up 0.5%, and the index for business supplies rose 1.1% in January.

Durable goods manufacturing advanced 0.8% in January and 3.7% from the year prior. Monthly growth was greatest for nonmetallic mineral products (up 2.2%), while aerospace and miscellaneous transportation equipment posted the only decline (down 0.2%), although it was still up 9.8% from January 2025. Meanwhile, led by a 1.3% gain in plastics and rubber products output, nondurable manufacturing increased 0.4% in January and 1.3% from January 2025.

Real GDP increased at an annual rate of 1.4% in the fourth quarter of 2025, down from a 4.4% rise in the third quarter and below consensus expectations. The increase in GDP during the fourth quarter mostly reflected increases in consumer spending and investment, which were partially offset by reductions in government spending and exports. In 2025, real GDP grew at an annual rate of 2.2%, down from 2.8% in 2024. The increase in GDP in 2025 mostly reflected a 2.7% rise in consumer spending, which was partially offset by a reduction in nondefense, federal government spending, which fell 4.2%.

Consumer spending grew at an annual rate of 2.4%, down from a 3.5% increase in the third quarter, with spending on services (up 3.4%) contributing to the gain, while spending on goods declined (down 0.1%). Consumer spending on nondurable goods ticked up 0.4%, but spending on durable goods fell 0.9% after rising 1.6% in the third quarter. The rise in nondurable goods consumer spending was driven by clothing and footwear and other nondurable goods, with declines in other nondurable goods categories. Meanwhile, the decline in consumer spending on durable goods was driven by motor vehicles and parts. Within services, spending increases were relatively widespread, with health care being the largest contributor to the gain.

Investment grew 2.6% at an annual rate in the fourth quarter, after ticking up 0.8% in the third quarter. The improvement was driven by a 7.4% surge in intellectual property products investment, up from 5.6% in the third quarter. Meanwhile, business spending on structures declined 2.4%. Exports dropped 0.9% in the fourth quarter, with the decline entirely concentrated in goods exports (down 1.8%). At the same time, imports fell 1.3% in the fourth quarter, with the decline also entirely concentrated in goods (down 2.8%). The plummet in federal government spending (down 16.6%) was driven by the extended government shutdown in the fourth quarter. Meanwhile, state and local government spending increased 2.4% in the fourth quarter, up from the 2.0% rise in the prior quarter.

Existing home sales fell 8.4% in January, the largest monthly decline in nearly four years, and 4.4% over the year. Housing inventory moved down to 1.22 million units, reflecting a 0.8% drop from December but a 3.4% increase from last year. The median existing home price was $396,800, up 0.9% from last year. The Northeast, South, Midwest and West all posted monthly decreases in existing home sales in January.

Single-family home sales fell 9.0% from December and 4.3% from January 2025, with the median price increasing 0.6% from last year to $400,300. Condo and co-op sales decreased 2.6% over the month and 5.0% over the year to 380,000 units in January. Meanwhile, the median price for condos and co-ops rose 3.8% from the prior year to $364,600.

Homes were typically on the market for 46 days in January, up from 39 days in December and 41 days in January 2025. First-time buyers made up 31% of sales in January, up from 29% in December and 28% in January 2025.