Input Stories

In February, U.S. manufacturing growth accelerated notably. The S&P Global U.S. Manufacturing PMI rose to 52.7 in February from 51.2 in January, the second consecutive month in expansion territory and the highest rate of growth since June 2022. Production improved to the quickest pace since May 2022, while new orders grew at the fastest rate in a year. Nevertheless, there’s evidence that the expansion for these components was partially due to advanced purchases ahead of price increases and potential supply chain disruptions once tariffs are imposed. Furthermore, the sector’s growth in February was coupled with a drop in optimism, as companies expressed concerns over tariffs and other administration policies.

Input costs increased in February to the highest level since November 2022, as suppliers started adjusting prices in response to tariffs. Faced with heightened input costs, output charges rose for the fourth consecutive month and at a steeper degree to the highest level in two years.

The growth in new orders was led by increased client restocking, as customers try to get ahead of tariffs. Global demand continued to drag on the overall orders reading, with new export sales dropping in February for the ninth consecutive month. Backlogs declined for a 29th consecutive month and at a faster rate, enabled in part by increased labor capacity. Meanwhile, February marks the fourth consecutive rise in the employment reading, but growth was modest.

In February, the global manufacturing sector moved further into expansion territory to 50.6, an eight-month high. Three of the five PMI components were at levels consistent with expansion, as output and new orders rose for the second month in a row, and suppliers’ delivery times lengthened. On the other hand, employment and stocks of purchases continued to decline.

India, Indonesia, Brazil and the U.S. had the highest PMI readings in February, while China’s PMI also improved. On the other hand, the contraction in the Eurozone, Japan and the U.K. persisted.

The improvement in conditions led confidence to rise to a nine-month high. The expansion in output was driven by intermediate goods and consumer goods, which had the fastest growth. Meanwhile, investment goods stabilized after eight consecutive months of contraction. Increased output was also supported by growth of new orders, which rose at the quickest pace since March 2022. On the other hand, international trade declined for the ninth consecutive month, but the rate of contraction was mild.

In February, manufacturing employment declined for the seventh consecutive month but at a slower rate than the prior month. Employment losses in China, Eurozone, the U.K., Canada and Mexico were offset only partially by growth in the U.S., Japan, Brazil and India. Input costs and selling prices continued to rise and at faster rates than in January, reaching 25- and eight-month highs, respectively.

In February, the U.S. manufacturing sector expanded for the second consecutive month but at a slower pace, with the ISM Manufacturing® PMI falling to 50.3% from 50.9% the prior month. Customer demand weakened, output stabilized and inputs revealed signs of suppliers’ difficulty meeting accelerated delivery requests to head off increased tariff rates. The New Orders and Employment Indexes dropped back into contraction territory, declining to 48.6% and 47.6%, respectively. Production remained in expansion territory but weakened to 50.7%, 1.8 percentage points lower than January. Meanwhile, inventories (49.9%) and backlog of orders (46.8%) contracted at a slower pace in February.

The New Orders Index contracted after expanding for three consecutive months, a 6.5 percentage point drop from January. The index hasn’t shown consistent growth since a 24-month streak of expansion ended in May 2022, and respondents noted a weakening in demand, with four of the six major sectors—petroleum and coal products; machinery; chemical products; and food, beverage and tobacco products—reporting an increase in new orders.

The Production Index expanded for the second consecutive month. Prior to the past two months, the last time the index registered above 50% occurred in April 2024. Of the six largest manufacturing sectors, three—food, beverage and tobacco products; transportation equipment; and chemical products—reported increased production.

The Employment Index decreased 2.7 percentage points in February, returning to contraction after expanding for a single month. Of the six largest manufacturing sectors, only one—transportation equipment—reported increased employment. Companies continued to reduce headcounts through layoffs, attrition and hiring freezes.

The Prices Index rose 7.5 percentage points to 62.4%, indicating raw materials prices increased for the fifth straight month in February, driven by the dramatic rise in commodity prices as a result of new and potential tariffs. Steel, aluminum, copper, food elements, plastics and natural gas registered increases. More than 31% of companies reported paying higher prices, up from 21% in January.

Nonfarm payroll employment increased by 151,000 in February, slightly below the expectation of 170,000. In addition to the February gain being weaker than expected, January and December’s job gains were revised downward by a combined 2,000 jobs, with January’s gain revised downward by 18,000 and December’s gain revised upward by 16,000. The 12-month average stands at 162,250 job gains per month. The unemployment rate ticked up 0.1% to 4.1%, while the labor force participation rate edged down 0.2% to 62.4%.

Manufacturing employment rose by 10,000, but the January gain of 3,000 was revised downward to a loss of 5,000 jobs. The most significant gains in manufacturing in February occurred in motor vehicles and parts, which added 8,900 jobs over the month, recovering some of the 10,400 jobs lost in January. Meanwhile, the most significant losses occurred in computer and electronic product manufacturing, which shed 2,700 jobs over the month.

The employment-population ratio fell 0.2% to 59.9% and is down a slight 0.2 percentage points from a year ago. Employed persons who are part-time workers for economic reasons increased by 460,000 to 4.94 million and are up from 4.37 million in February 2024. Native-born employment is up 284,000 over the month and 1,544,000 over the year. Meanwhile, foreign-born employment is down 87,000 over the month but still up 685,000 over the year.

Average hourly earnings for all private nonfarm payroll employees rose 0.3%, or 10 cents, reaching $35.93. Over the past year, earnings have grown 4.0%. The average workweek for all employees and manufacturing employees stayed the same at 34.1 hours and 40.1 hours, respectively.

In his first address to Congress in his second term, President Trump made it clear that tariffs are not just a temporary tool, but a fixture of his administration’s trade policy. The president discussed his vision for an “America First” strategy, which includes the tariffs that went into effect Tuesday and last month.

In his words: “Deals are being made,” he said. “That’s a combination of the election win and tariffs. It’s a beautiful word, isn’t it?”

• “If you don’t make your product in America … you will pay a tariff and, in some cases, a rather large one. Other countries have used tariffs against us for decades, and now it’s our turn to start using them against those other countries.”
• “On average [according to the president], the European Union, China, Brazil, India, Mexico and Canada … and countless other nations charge us tremendously higher tariffs than we charge them. It’s very unfair.”
• “[On April 2,] reciprocal tariffs kick in, and whatever they tariff us, other countries, we will tariff them…If they do nonmonetary tariffs to keep us out of their market, then we will do nonmonetary barriers to keep them out of our market.”

On Canada and Mexico: “[W]e have very large deficits with both of them. … We pay subsidies to Canada and to Mexico of hundreds of billions of dollars. And the United States will not be doing that any longer. We are not going to do it any longer.”

• “Tariffs are about making America rich again and making America great again, and it is happening, and it will happen rather quickly. There will be a little disturbance, but we are OK with that.”

The NAM’s take: Ahead of the speech, NAM President and CEO Jay Timmons pointed out in a statement that manufacturers—especially those with thin margins—are already feeling the pressure from new tariffs. “The stakes couldn’t be higher for manufacturers right now,” he said. The NAM highlighted some examples after the tariffs went into effect yesterday from both small and large manufacturers:

• A power-engineering manufacturer faces $25 million in additional costs from the Mexico tariffs alone, impacting the ability to supply U.S. utilities and industrial customers.
• A major consumer goods manufacturer is looking at $231 million new costs from tariffs from Mexico and Canada.
• A small copper manufacturer was forced to turn back 388,000 pounds of copper at the Canadian border when tariffs took effect, with future imports costing an extra $50,000 per truckload.

Comprehensive manufacturing strategy: “To mitigate the adverse effects of today’s tariffs,” Timmons said, “President Trump and Congress [need] to implement a comprehensive manufacturing strategy that would create predictability and certainty to invest, plan and hire.”

• That strategy should include making President Trump’s 2017 tax reforms permanent and more competitive, securing regulatory certainty, expediting permitting reform to unleash American energy dominance and key manufacturing projects, increasing the talent pool and implementing a commonsense trade policy, Timmons added.
• In recent weeks, including with the NAM State of Manufacturing Address, Timmons has been raising the alarm on the need to move now on preserving and extending the 2017 tax reforms in the face of the uncertainty and price pressures.

The bottom line: “Building things in America only works if we can sell them around the world,” said Timmons. He added this morning: “That’s why we’re urging President Trump and Congress to provide greater predictability with a phase-in period for manufacturers to adjust to new trade realities, while also establishing clear exemptions for critical inputs, enabling reciprocity in manufacturing trade.”

• “President Trump can make American manufacturing greater than ever before by negotiating a ‘zero for zero’ tariffs manufacturing trade deal with our major trading partners,” Timmons said.

Developing: This morning on Bloomberg TV, Commerce Secretary Howard Lutnick hinted publicly that he has heard the NAM and the industry’s urging for relief from tariffs on Canadian and Mexican imports for products that comply with the U.S.–Mexico–Canada Agreement—a signature achievement of President Trump’s first term.

White House adviser David Sacks has his work cut out for him (POLITICO Pro’s ENERGYWIRE, subscription).

What’s going on: “Today, as the president’s AI and crypto czar, Sacks is tasked with opening doors for Silicon Valley and global financiers to expand AI infrastructure—and fast. But that presents Sacks with a wholly unfamiliar challenge: ensuring the tech industry gets the electricity it needs for a massive buildout of data centers to house the computing power needed for AI technology.”

• Technology giants including Amazon have pledged to spend billions on AI infrastructure to construct those data centers. In January, Trump and two tech firm leaders announced the $500 billion “Stargate” project to do just that.

Interconnection, cost challenges: While the president “has promised to use emergency declarations to build more power plants” to run these data centers, “tech companies that want to erect their own power plants will wrestle with the limited supply of ready transformers and the real-world challenges of putting up a large gas-fired power station or tying into a nuclear reactor.”

• That’s because regional electric grids and utility companies are already straining to keep up with Americans’ growing power appetite, and the prospect of dramatically increasing capacity is leading to concerns about cost and reliability.

What’s next: “Under Trump’s executive order, Sacks will work alongside policy staffers on science and technology, national security, economic policy and other relevant departments to craft an AI action plan. … Some direction could come from Trump’s National Energy Council, set to be led by Interior Secretary Doug Burgum. That council is likely to consider steps to streamline permitting and to unleash more fossil fuel production and other energy sources like nuclear and geothermal.”

What we’re doing: The NAM has long urged Congress to take steps to facilitate the construction of data centers, including:

• Reforming the U.S. permitting system;
• Ensuring energy affordability;
• Expediting licensing;
• Addressing shortages of components;
• Mitigating cybersecurity risks; and
• Bolstering workforce development efforts.

By deciding to pause the imposition of tariffs he announced last weekend on Mexico and Canada, President Trump shows he’s hearing manufacturers “loud and clear,” the NAM said yesterday.

What’s going on: Two days after signing three separate executive orders under the International Emergency Economic Powers Act to add new levies on goods from Mexico, Canada and China, President Trump announced a one-month pause yesterday on the 25% tariff on Mexican goods and the 25% tariff on Canadian goods, including the 10% levy on energy products.

• President Trump, who had cited illegal immigration and the flow of illicit drugs into the U.S. as the impetus for the new tariffs, said Mexican President Claudia Sheinbaum agreed Monday morning to “immediately supply” 10,000 Mexican National Guard troops to the border.
• The announcement about the tariffs on goods from Canada came following an afternoon phone call between President Trump and Canadian Prime Minister Justin Trudeau.
• The 10% additional tariff applying to products from China went into effect today. In response, China announced retaliatory tariffs on certain goods imported from the U.S., as well as additional restrictions on critical minerals exports to the U.S. (The Wall Street Journal, subscription).

Staying competitive: “This decision by President Trump reflects his swift move to keep his campaign promises, balancing a commitment to aggressive border enforcement with the need to keep manufacturing in the United States competitive,” NAM Executive Vice President Erin Streeter said.

• “The NAM has worked closely with the administration, ensuring that the voices of manufacturers were heard loud and clear. Throughout the weekend, we engaged directly with senior officials, providing key data and real-world industry perspectives. Our efforts helped underscore the risks of broad-based tariffs and the importance of North American supply chains to manufacturing’s success.”
• NAM President and CEO Jay Timmons reinforced President Trump’s and the manufacturing sector’s priorities in interviews Monday with CNBC and ABC, as well as in a statement cited by the Wall Street Journal editorial board.

Certainty needed: For manufacturing in the U.S. to thrive, “we need to bring costs down,” Timmons told ABC. “And if you don’t have that, or you have the uncertainty of what’s coming next, manufacturers are reluctant to invest in new plants and equipment and facilities. They’re reluctant to hire new workers … raise wages or increase benefits. … Once we get all this sorted out, I think it will be good news for manufacturers,” but the sooner that happens, the better, he concluded.

• Timmons also discussed President Trump’s landmark 2020 U.S.–Mexico–Canada Agreement, which he said provided manufacturers with the certainty the sector requires.
• “The certainty that was provided by a negotiated and accepted trade agreement by the three countries enabled manufacturers to make investment decisions,” Timmons told CNBC. “Now we have more uncertainty about what’s ahead … but we assume that there is a rationale for this.”

Key statistics: The USMCA was vital in shifting key imports away from China to North America. According to a new NAM fact sheet:

• Fully one-third of all U.S. manufacturing inputs come from Canada and Mexico;
• Some 70% of what we import from Canada and nearly 60% of imports from Mexico are capital equipment, industrial supplies and automotive parts that go into further manufacturing in the U.S.; and
• The value of U.S. imports of manufacturing materials from North America is now three times greater than the value of materials coming from China.

The bottom line: “We appreciate the administration’s continued willingness to receive our data and manufacturing stories,” Streeter went on. “We will continue working with policymakers to ensure that future decisions support both national security and manufacturing’s success.”

NAM in the news: The NAM’s advocacy received widespread attention in the media, with Fox Business, CNBC, Bloomberg (subscription), CNN, The New York Times (subscription), Punchbowl News and a Wall Street Journal (subscription) article all highlighting its statements on the impact of tariffs on manufacturers.

• Its positions were also mentioned on “Bloomberg Surveillance,” CTV News Channel,  MSNBC’s “Inside with Jen Psaki” and MSNBC’s “Morning Joe.”

The recission of every harmful regulation will look different, as will any subsequent legal challenges. Here is one potential scenario for a crucial regulation that the NAM has urged President Trump to undo: the Biden EPA’s overly strict air quality standards.

The background: In February 2024, the EPA lowered the standard for particulate matter, or PM2.5, in its National Ambient Air Quality Standards rule by 25%, down from 12 micrograms per cubic meter of air to nine.

• This reduction put the level of acceptable particulates at almost the equivalent of the level found in nature, as NAM Vice President of Domestic Policy Chris Phalen pointed out.
• An NAM-commissioned analysis by Oxford Economics found that a standard at this level could reduce GDP by nearly $200 billion and cost as many as 1 million jobs through 2031.
• Furthermore, the new rule put huge swaths of the country in “nonattainment,” meaning that they would not meet ambient air quality standards and would have to cease operating.

What could happen: The rule has not taken effect due to the current lack of compliance requirements. However, it will take the Trump administration some time to achieve a recission, which will have to begin with a Notice of Proposed Rulemaking to solicit public comments.

What the EPA should do: The EPA decided against lowering the air quality standard in 2020, but the Biden administration pushed through this change anyway, without the scientific support required by the Clean Air Act.

• The NAM is asking the Trump administration to reverse course by instituting an NPRM and doing the appropriate research and consideration of public comment to develop a more reasonable standard.

NAM in action: The NAM is fighting the regulation in court, alongside a number of other business associations.

President Trump will soon “ramp up” workplace immigration status checks, according to incoming border czar Tom Homan (NBC News).
 
What’s going on: The incoming administration intends to increase U.S. Immigration and Customs Enforcement raids of workplaces shortly after Trump’s inauguration, Homan told NBC News late last week.

• “We’re going to do it in a smart way,” Homan said. “We’re still working on how exactly we want to roll this out, but [worksite] operations have to come back again because it’s the No. 1 place we find victims of forced labor being run by many cartels.”

Funds needed: ICE has a $230 million budget shortfall, which the Trump administration plans to address by requesting more funding from Congress.
 
Other ideas: The new administration is considering additional actions, Homan said, including:

• Tripling the number of beds in detention facilities, from 34,000 to at least 100,000;
• Creating a hotline people can call to report undocumented immigrants they believe have committed crimes;
• Holding weekly press conferences with updates on deportations; and
• Potentially expanding ICE’s 287(g) program, which allows the agency to partner with local law enforcement.

Title 42: Whether the administration will reinstate Title 42—the COVID-19-era immigration restriction measure that made deportations on public health grounds easier—remains to be seen, according to Homan.

• “I don’t know whether [Trump] has made a decision, and I would not get ahead of him,” Homan told NBC News. “But I think there could be a case made for it.”

National security: Stricter immigration policies will act as a deterrent to those considering coming to the U.S. illegally, Homan continued.

• “I think the American people have spoken,” he said. “This is the No. 1 issue. They went to the voting booth. I think Congress is paying attention. They’ll give us the money to do this job. It’s not so much about illegal immigration. It’s about national security.”

Our take: “Manufacturers support a comprehensive approach to our country’s immigration challenges, both to ensure that they have the workforce they need to support economic growth and to enforce our laws and secure our border,” said NAM Senior Director of Technology Policy Franck Journoud.

• “Securing the border is a crucial step toward ensuring that America’s immigration laws support safe and prosperous communities across the country.”

One of the most popular current uses of generative artificial intelligence among businesses: taking “chatbots to the next level” (The Wall Street Journal, subscription).
 
What’s going on: “Software companies from Salesforce to ServiceNow, Microsoft and Workday last year all announced their own AI agents, which they say can help businesses be even more hands-off in areas like recruiting employees, contacting potential sales leads, creating marketing content and managing their information technology.”

Why it’s important: If the bots work the way they’re expected to, they could finally yield the return on investment the business world has been seeking.

• The technology is being used for chatbots in everything from manufacturing to finance and ecommerce.

AI agents in manufacturing: New Jersey–based health care company Johnson & Johnson is using the bots to help it during the new drug discovery phase.

• “Once a promising pharmaceutical molecule has been identified, according to Chief Information Officer Jim Swanson, it needs to be measured for its cost effectiveness and reliability. … The solution: an autonomous AI agent that can determine the best time to conduct a solvent switch, a process where one solvent is swapped for another to crystallize a molecule and actually create the drug, Swanson said.”

A caveat: J&J is optimistic about the technology’s potential but moving forward cautiously. It is still working on improving the flow of employee review of the automated agents’ output, Swanson told the Journal.