The impact of new tariffs and the anticipation of new ones on imported goods, especially raw inputs, showed up in the ISM Manufacturing data for February with the prices paid subindex rising to the highest level since June 2022. The subindex rose to 62.4 from 54.9 in the prior month, the Institute for Supply Management reported on Monday.
While the bulk of new tariffs that are on Canada and Mexico won’t be in effect until March, the market has already adjusted its prices to match the strong demand from companies that want to pull ahead their purchases. That put pressure on supply deliveries and inventories to catch up with the spike in demand.
Overall ISM manufacturing index continued to show an expansion for the second month in a row, yet at a more modest pace at 50.3.
But that did not mean manufacturing companies were willing to hire more workers to boost their capacity on the labor part of the production function with the employment subindex falling into negative territory again in February.
Read more of RSM’s insights on the economy and the middle market.
Increasing uncertainty and market volatility were why companies were not willing to commit to long-term hirings. Many respondents indicated that tariffs, inflation and pricing pressure are driving up uncertainty.
The drop in employment sentiment implied a somewhat weaker month of job gains for the manufacturing sector ahead of the February jobs report that will come out on Friday.
The report should keep the Federal Reserve on notice because of the early signs of the impact that tariffs will have on inflation.
