The latest S&P Global US Flash Manufacturing PMI, released an hour ago, signaled a notable cooling in business activity, raising fresh questions about the strength of the U.S. economy while simultaneously reigniting concerns about persistent inflation pressures.
According to the preliminary February data, the Flash US Manufacturing PMI fell to 51.2, down from 52.4 in January, a seven-month low. While the reading remains above the 50 threshold that separates expansion from contraction, it marks the weakest pace of manufacturing growth since last summer.
The broader Flash US Composite PMI Output Index declined to 52.3 from 53.0, its lowest level in ten months, reflecting moderating growth across both manufacturing and services. The Manufacturing Output Index dropped sharply to 52.3 from 55.2, a seven-month low, highlighting waning production momentum.
Growth Slows as Orders and Exports Weaken
The report paints a picture of slowing demand conditions. Factory new orders declined slightly for the second time in three months, while export orders fell at one of the steepest rates recorded over the past year. Businesses cited high prices, tariffs, stretched affordability, and subdued customer confidence as key factors weighing on demand.
Severe winter weather was also mentioned as a temporary drag on activity, disrupting both production and service-sector operations.
Although manufacturing continues to expand, the slowdown suggests that underlying growth momentum is weakening midway through the first quarter of 2026.
Employment Growth Nearly Stalls
Hiring activity showed additional signs of cooling. Employment rose only marginally for the third consecutive month, marking the weakest hiring pace since April of last year. Manufacturing payroll growth nearly stalled, reflecting caution among firms facing soft sales and elevated input costs.
At the same time, capacity constraints persisted in some areas. Backlogs of work accumulated in the service sector at the fastest rate since May 2022, while manufacturing backlogs declined as production outpaced new orders.
Supply Chains Strained Again
Supplier delivery times lengthened to the greatest extent since October 2022; a period associated with pandemic-related supply disruptions. Companies blamed severe weather, logistical congestion, and delays linked to tariff policy.
Inventories of inputs fell at the sharpest pace in over a year, reflecting both lower purchasing activity and supply bottlenecks.
The reemergence of supply-chain strain is likely to concern policymakers already grappling with sticky inflation.
Prices Jump, Especially in Services
Perhaps the most market-sensitive development was the renewed surge in prices.
Average prices charged for goods and services rose at the steepest pace since last August. While manufacturing selling-price inflation eased slightly, attributed to discounting to stimulate demand, services inflation accelerated to a seven-month high, one of the strongest increases seen in more than three years.
Input costs remained elevated, with firms widely citing supplier price hikes, tariffs, and rising labor costs as drivers.
The combination of slowing growth and persistent price pressures complicates the Federal Reserve’s outlook, potentially reinforcing a cautious stance on interest rate cuts.
Market Reaction: Yields Rise, Stocks Mixed
Financial markets reacted swiftly following the release:
- U.S. Treasury yields edged higher, as investors digested the inflationary implications of rising input and selling prices.
- The U.S. dollar strengthened modestly, supported by expectations that the Fed may delay easing amid sticky price data.
- Equities showed mixed performance, with industrial and manufacturing-related stocks under pressure, while some defensive sectors outperformed.
Growth-sensitive technology stocks initially dipped as investors reassessed the risk of prolonged higher interest rates.
Outlook: Temporary Slowdown or Broader Cooling?
Despite February’s slowdown, business expectations for the year ahead improved sharply, rising to a 13-month high. Companies expressed optimism that improved weather conditions, supportive financial conditions, and potential tax incentives could boost activity in the coming months.
However, future sentiment remains slightly below its long-run average, reflecting continued concerns about tariffs and broader political uncertainty.
What This Means for the Federal Reserve
The Flash PMI data presents a mixed signal for policymakers:
- Slower growth could argue for eventual rate cuts.
- Elevated price pressures and rising service-sector inflation argue for patience.
With inflation progress appearing uneven, today’s data may reinforce the Fed’s data-dependent approach.
Bottom Line
The February Flash Manufacturing PMI underscores a delicate balance in the U.S. economy: growth is slowing to its weakest pace in ten months, yet price pressures remain elevated.
For markets, this creates a complex environment. Traders must now weigh weaker demand and softer hiring against persistent inflation and renewed supply-chain strains, a combination that could shape the trajectory of interest rates and asset prices in the months ahead.
