Input Stories

In March, Philadelphia’s regional manufacturing activity continued to expand but was less widespread than in February. The index for current general business activity fell from 18.1 to 12.5, the second consecutive monthly decline. Nearly 31% of firms reported increased activity this month, while 18.1% saw decreases in March compared to 22.5% reporting declines in February. Meanwhile, 46.7% experienced no change. The indexes for new orders and shipments both plummeted from 21.9 and 26.3 to 8.7 and 2.0, respectively. On the other hand, employment expectations rose to a multiyear high, increasing from 5.3 to 19.7. The average employee workweek index grew from 2.9 to 8.7.

The prices paid index increased nearly eight points to 48.3, the highest reading since July 2022, while the prices received index slipped three points to 29.8. As has been the case for many months, the prices received index remains lower than the prices paid index, indicating manufacturers have been absorbing a sizable portion of those higher costs paid.

Looking ahead, nearly all future indicators decreased. The index for future general business activity fell again, from 27.8 in February to 5.6 in March. A higher proportion of firms (25.8%) expect decreases in activity, compared to last month’s reading of 18.5%, while 31.4% expect activity to improve. Additionally, the future new orders and shipments indexes plunged from 33.1 and 36.5to 2.3 and 11.3, respectively. The index for future employment dropped from 23.7 to 17.3, a smaller reduction than in the prior month. The capital expenditures index slipped from 14.0 to 13.4. The future prices paid index fell 14 points to 44.6, while the future prices received index fell six points to 39.7, indicating manufacturers remain concerned about future costs rising but not as much as before.

Industrial production increased 0.7% in February after rising 0.3% in January. Meanwhile, manufacturing output jumped 0.9%, boosted by an 8.5% upsurge in the motor vehicles and parts index. Despite the dramatic increase in February, motor vehicles and parts output was still down 4.8% over the year and hasn’t recovered fully from the drops in output in Q3 and Q4. At 104.2% of its 2017 average, total industrial production in February rose 1.4% from the same month last year. Capacity utilization stepped up to 78.2% and increased 1.3% over the past year, but remains 1.4 percentage points below its long-term average from 1972 to 2024.

In February, a majority of major market groups posted gains. Among consumer goods, the production of durables increased 4.3%, led by automotive products (7.8%) and appliances, furniture and carpeting (1.7%), while the index for nondurables declined 0.8%, with the greatest decreases in energy (-3.2%) and foods and tobacco (-0.7%). The business equipment index improved 1.6% in February, with transit equipment up 7.9% after rising 7.7% in January and 12.7% in December.

Durable goods manufacturing increased 1.6% in February, with most durable manufacturing industry groups exhibiting gains. Nondurable goods manufacturing inched up 0.2% in February, led by apparel and leather (1.3%) and chemicals (1.0%). Manufacturing capacity utilization rose 0.6 percentage points to 77.0%, but remains 1.2 percentage points below the long-term average.

The NFIB Small Business Optimism Index fell 2.1 points in February to 100.7. Despite optimism falling, it was the fourth consecutive month above the 51-year average of 98 but also 4.4 points below the most recent peak of 105.1. Of the 10 components included in the index, three increased and seven decreased. The Uncertainty Index rose 4 points to 104, the second highest reading of the index.

Labor quality was cited as the top concern for many small business owners in February, surpassing inflation as the top issue, with 19% reporting labor quality as the most important problem. However, inflation was the second most important concern, tied with taxes, with 16% reporting them as their most important problem, the lowest reporting percentage for inflation since October 2021. In February, 38% of small business owners reported jobs they could not fill, up 3 percentage points from January. The challenge of filling open positions remains acute particularly in manufacturing, retail and construction.

A net 33% of small business owners reported raising compensation, the same as January. Profitability remained under pressure, with a net negative 24% reporting positive profit trends, 1 point worse than in January. Of those reporting lower profits, 40% claimed weaker sales, while 13% cited ordinary seasonal adjustments. A net 29% of small business owners planned price hikes in February, up 3 percentage points from January and the highest reading in 11 months. On the other hand, just 2% reported their last loan was harder to get than previous attempts, the lowest since February 2022, while a net 4% of owners reported paying a higher rate on their most recent loan.

The outlook for general business conditions fell 10 points to 37. The share of firms saying it is a good time to expand fell 5 percentage points to 12%. Uncertainty is high and weighing on small business optimism. Although small business owners still remain broadly optimistic, confidence that the economy will continue to grow is fading.

The Producer Price Index for final demand (also known as wholesale prices) stayed the same in February, after rising 0.6% in January. Over the year, producer prices moved up 3.2%, coming in lower than expectations. Prices for final demand excluding foods, energy and trade services rose 0.2%, after increasing 0.3% in January. Prices for these goods advanced 3.3% from February 2024.

In February, prices for final demand services declined 0.2%, which was offset by prices for final demand goods growing 0.3%. Two-thirds of the increase in the final demand goods index can be attributed to prices for chicken eggs, which soared 53.6%. Meanwhile, prices for gasoline fell 4.7% over the month. The index for final demand goods, excluding foods and energy, rose 0.4%, up from 0.2% in January.

Processed goods for intermediate demand rose 0.5% in February, down from the 1.0% jump in January. More than 40% of the increase could be attributed to a 0.3% rise in the index for processed materials less foods and energy. Prices for processed foods and feeds and for processed energy goods also advanced, 2.0% and 0.5%, respectively. Over the year, the index rose 0.3%, down from the 0.9% increase in January.

Meanwhile, prices for unprocessed goods for intermediate demand rose 1.3% in February, the third consecutive monthly increase. The rise was driven by a 5.1% boost in prices for unprocessed foodstuffs and feedstuffs. Unprocessed nonfood materials less energy rose 2.2%. Prices for unprocessed goods for intermediate demand surged 10.5% from February 2024, the largest increase since December 2022.

Consumer prices increased 0.2% over the month and 2.8% over the year in February, slowing from the 3.0% over-the-year rise in January and coming in lower than expectations. Core CPI, which excludes more volatile energy and food prices, edged up to a 3.1% over-the-year increase and rose 0.2% over the month, down from 0.4% in January.

Shelter rose 0.3% over the month, accounting for nearly half of the monthly increase of the all-items index, and 4.2% over the year. Energy costs grew 0.2% over the month in February, with utility gas service leading the increase, rising 2.5%. Meanwhile, prices for gasoline fell 1.0%, while electricity prices grew 1.0% from January. Although prices for transportation services edged down 0.8% over the month, they were still up 6.0% over the year, with motor vehicle insurance leading the increase, surging 11.1% over the year.

Food prices continue inching up, rising 0.2% over the month and 2.6% over the year in February. The food at home index stayed the same over the month, but the indexes for meats, poultry, fish and eggs rose 1.6% in February. Driven by the bird flu outbreak, the index for eggs alone increased 10.4% over the month and 58.8% over the year. Food away from home rose 0.4% in February and was up 3.7% over the year.

As the over-the-year headline inflation rate remains elevated, markets are anticipating that the Federal Open Market Committee will keep rates steady at its meeting this week. This expectation was confirmed further in Federal Reserve Chairman Jerome Powell’s recent comments at an economic forum in New York where he said that the Fed is in no hurry to reduce its interest rate target.

Job openings for manufacturing increased by 31,000 to 462,000 in January. The gain was concentrated primarily in durable goods, up 26,000, while nondurable goods job openings rose by a smaller 4,000. The manufacturing job openings rate edged up 0.2% to 3.5% in January but declined from 4.1% the previous year. The rate for durable goods manufacturing increased 0.4% to 3.9%, while it inched up 0.1% to 2.9% for nondurable goods.

In the larger economy, the number of job openings rose to 7.7 million, an increase of 232,000 from the previous month but a decrease of 728,000 from the previous year. The job openings rate increased to 4.6%, up from 4.5% in December but down from 5.1% last year. While this data reflects an overall labor market that has cooled significantly, steady hiring and low layoffs suggest the labor market remains solid.

The number of hires in the overall economy was relatively unchanged at 5.4 million in January but dropped 179,000 from the previous year. The hires rate for the overall economy stayed the same in January at 3.4%. Meanwhile the hires rate for manufacturing increased 0.2% to 2.6%. The hires rate for durable goods rose 0.5% to 2.5%, but fell 0.2% to 2.8% for nondurable goods.

Total separations, which include quits, layoffs, discharges and other separations, rose 170,000 from December to 5.3 million but dropped 177,000 from the previous year. The total separations rate inched up 0.1% to 3.3% for the overall economy and stayed the same for manufacturing at 2.5%. Within that rate, layoffs and discharges rose by 6,000 in January for manufacturing, while quits increased by 5,000. Despite the gain, the quit and layoff rates continue to remain lower for manufacturing than the total nonfarm sector.

At an NAM-sponsored breakfast at energy conference CERAWeek in Houston on Tuesday, Interior Secretary Doug Burgum assured NAM board members that the administration has a manufacturing strategy in place, particularly regarding permitting, infrastructure development and manufacturers’ access to reliable and affordable energy.

A comprehensive strategy: In his remarks opening the event, NAM President and CEO Jay Timmons discussed the five-pillar, comprehensive manufacturing strategy that the NAM has been urging the Trump administration to implement.

• “Secretary Burgum, I just want you to know we’ve been making the case for a coordinated, comprehensive manufacturing strategy to give us the predictability and the certainty that manufacturers need to plan, to invest and to hire here in the United States, and that strategy has five pillars—goals that I know you share,” Timmons said.
• The goals are making the 2017 tax reforms even more competitive and permanent; securing regulatory certainty; expediting permitting reform to unleash American energy dominance; increasing the talent pool; and implementing a commonsense trade policy—to expand access to markets while keeping manufacturing competitive.
• Timmons warned of the dire consequences the U.S. economy and manufacturers will face if lawmakers fail to extend the 2017 tax reforms. Among them: the loss of some 6 million American jobs, according to a recent NAM–EY study.

An economic backbone: “Manufacturing, as you know, has been the backbone” of the economy, Burgum said. “President Trump ran on bringing manufacturing back to the United States. His policies are driving to do that.”

Unleashing U.S. energy: Timmons praised President Trump for his day-one lifting of the previous administration’s liquefied natural gas export permit moratorium.

• The “recent NAM LNG study found that the U.S. LNG export industry could support more than 900,000 jobs and add $216 billion to GDP by 2044,” he said.
• Said Burgum: “We are looking at everything to try to, for the first time, [have] streamlined government. … [and] it’s happening. It’s happening quickly.”

“Optimistic about the future”: The administration’s commitment to “low taxes and cutting red tape”—on which President Trump’s recently created National Energy Dominance Council is focusing—“are all things that are going to help lower your cost and create opportunities,” Burgum continued.

• “Capital is flowing to the U.S. at record levels. … I’m very optimistic about the future.”

The last word: At another event at CERAWeek, a roundtable sponsored by Natural Allies for a Clean Energy Future, Timmons summed up manufacturers’ commitments.

• “Yes, we care about developing our natural resources to power our economy, certainly through manufacturing, but it’s also about people, here in the United States and around the world,” said Timmons. “The energy that we export, that is soft power for the United States. That expands our influence. That allows us to export not only our energy, but also our values. So I think that’s very, very important for our future.”

New orders for manufactured goods rose 1.7% in January, after two months of decline. When excluding transportation, new orders edged up 0.2%. Orders for durable goods jumped 3.2%, following a 1.8% decrease in December. Year to date, durable goods orders are up 4.3%. Nondurable goods orders ticked up 0.3% in January after increasing 0.5% in December. Nondurable goods orders are up 2.8% year to date.

New orders for nondefense aircraft and parts led the increase in durable goods by leaping 93.9%, after shrinking 28.9% last month. In January, the largest monthly decrease occurred in ships and boats, which declined 11.0%. The largest over-the-year changes also occurred in nondefense aircraft and parts (up 122.2%) and ships and boats (down 13.5%).

Factory shipments increased 0.4% in January, after rising 0.6% in December. Shipments excluding transportation edged up 0.2%, the same as the previous month. Shipments for durable goods improved 0.5% in January, down from 0.8% in December but up 2.6% year to date. Meanwhile, nondurable goods shipments rose 0.3% in January and are up 2.8% year to date.

Unfilled orders for all manufacturing industries rose 0.2% in January, following a 0.3% decrease in December. Inventories rose 0.1%, while the inventories-to-shipments ratio remained the same at 1.46. The unfilled orders-to-shipments ratio for durable goods decreased to 6.85 from 6.93 in December.

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.