U.S. business activity nearly came to a standstill in February, as new federal tariffs and significant government spending reductions began to take a toll on both manufacturers and service providers, according to S&P Global’s flash Purchasing Managers’ Index (PMI) report.
The composite PMI—a weighted gauge combining the performance of manufacturing and services—fell to 50.4 in February from 52.7 in January, marking its lowest reading since September 2023 and signaling a near-stagnation in U.S. private-sector activity.
While the headline PMI dipped, the manufacturing sector held onto slight growth, with its PMI inching up from 51.2 to 51.6. That expansion was largely attributed to a “front‑running” effect, where companies accelerated purchases to beat impending tariff increases—rather than reflecting true underlying demand. However, rising input costs—especially from steel and aluminum tariffs—were evident. Suppliers passed increased costs downstream, contributing to spiking goods inflation. Factory employment also showed signs of strain, with some firms pausing hiring or trimming staff.
The services PMI, which accounts for the majority of U.S. economic output, plunged from 52.9 to 49.7—the first contraction in over two years. Firms cited weakening sales and a sharp slowdown in new orders amid heightened uncertainty over federal policies, including spending cuts and tariff disruptions.
February’s downturn coincides with sweeping policy shifts. Newly enacted tariffs under the Trump administration, including 25% on steel and aluminum, 10% on a wide range of imported goods, and hinted future duties on autos, semiconductors, and pharmaceuticals, drove up costs and injected unpredictability into supply chains. At the same time, deep federal budget reductions—including federal layoffs—dampened economic demand. S&P Global noted that private-sector gains from the early Trump “business honeymoon” were quickly eroding under the pressure of austerity.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented, “Optimism about the year ahead has slumped … replaced with a darkening picture of heightened uncertainty, stalling business activity and rising prices.”
Companies reported the sharpest rise in input prices partly due to tariff‑driven cost pressure. Meanwhile, service‑sector selling price inflation was muted by stiff competition, squeezing margins.
Economic analysts, including J.P. Morgan and Deloitte, warn that rising U.S. tariffs could heighten recession risks, slow GDP growth, and introduce significant uncertainty. The weighted-average tariff rate in early April reached its highest level in a century, deepening concerns.
Major corporations across sectors—from Nike and Walmart to Ford and P&G—have begun raising consumer prices to offset tariff-driven cost increases. Supply-chain experts note that this “tariff whiplash” is disrupting just-in-time inventory models, leading firms to pause orders and revise forecasts.
A recent San Francisco Fed analysis suggests that while tariffs might preserve some domestic manufacturing jobs, they could suppress overall employment and real income, particularly hitting states like California and Texas hardest.
February’s PMI slump led the Federal Reserve to pause earlier rate‑cut plans, opting for caution amid rising inflation expectations and uncertain growth. With job growth cooling—March nonfarm payrolls were projected to slow from 151,000 to 135,000—markets are closely monitoring whether fiscal restraint and trade tension will trigger further economic softening.
Analysts are watching upcoming PMI readings and labor reports. Key indicators include whether the services PMI rebounds above 50 and if input-price inflation begins to ease as tariff effects play out.
The S&P Global flash PMI reading for February paints a sobering portrait: the U.S. economy stands at a pivotal point, where aggressive tariff actions and reduced federal spending risk undermining the solid private-sector momentum built at the end of last year. Services—which sustain consumer-facing industries—are already contracting. Manufacturers are running on borrowed strength as they front-run tariffs and contend with rising costs.
This delicate environment heightens questions over whether policy adjustments—such as tariff rollbacks, targeted fiscal mitigation, or central bank intervention—might be needed to maintain momentum in hiring, investment, and overall GDP growth in the months ahead.
