Dive Brief:
- Manufacturing grew for the second straight month despite soaring input prices and a murky business outlook caused by shifts in U.S. tariff rates, according to a measure of factory activity set before attacks on Iran pushed up energy prices.
- The Institute for Supply Management said Monday that its manufacturing index dipped to 52.4 last month from 52.6 but remained above the threshold signalling expansion. A measure of prices paid by manufacturers surged 11.5 points to 70.5, the highest level since June 2022.
- An ISM gauge of employment rose 0.7 percentage point but remained in contraction, with “45% of [survey] panelists still indicating that managing head counts is the norm at their companies as opposed to hiring,” Susan Spence, chair of ISM’s supply management manufacturing business survey committee, said in a statement.
Dive Insight:
Strikes on Iran since Saturday by U.S. and Israeli warplanes have pushed up the price of crude oil and other energy commodities. Futures for Brent crude oil jumped 8.8% on Monday.
A lengthy conflict in the Middle East may sustain high energy prices and jeopardize gains in manufacturing this year.
The rising price of energy is just one of the “major headwinds” buffeting manufacturing, Pantheon Macroeconomics Senior U.S. Economist Oliver Allen said Monday.
Consumer demand is apparently softening, and “the ISM survey’s commentary continues to cite considerable disruption and elevated costs due to tariffs,” Allen said in a note.
“Uncertainty over trade policy still weighs heavily on investment intentions, a drag that has intensified again following the Supreme Court’s rejection of most of the Trump administration’s tariffs and new duties the president has introduced in response,” he said.
Referring to manufacturing, Allen forecast “modest growth in output” rather than a boom.
Inflation has exceeded the Federal Reserve’s 2% target for nearly five years and has recently shown signs of persisting for manufacturers, other companies and consumers.
The producer price index rose at a faster-than-expected pace of 0.5% last month and 2.9% on an annual basis.
Services fueled much of the gain in the PPI, which measures prices charged by wholesalers, with prices for so-called final demand services rising 0.8% in January for the largest increase since July, the Bureau of Labor Statistics said Friday. Prices for final demand goods fell 0.3%.
The import price of so-called core goods — excluding volatile food and energy commodities — rose 2% last year compared with no change during the same 12-month period beginning in 2023, the Yale Budget Lab said Monday, based on data from the personal consumption expenditures index.
Manufacturers of primary metals, printing, textiles and nine other industries reported growth last month, while makers of furniture, apparel and three other types of goods reported contraction, according to ISM.
