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Small Business Optimism Declines, Uncertainty Rises

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.

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Unprocessed Goods See Largest Yearly Increase Since 2022

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.

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Price Increases Slow in February

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鈥檚 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.

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Durable Goods Drive Growth in Manufacturing Hiring

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.

Policy and Legal

Burgum Talks Taxes, Permitting and More

By 17吃瓜在线 News Room

At an 17吃瓜在线-sponsored breakfast at energy conference CERAWeek in Houston on Tuesday, Interior Secretary Doug Burgum assured 17吃瓜在线 board members that the administration has a manufacturing strategy in place, particularly regarding permitting, infrastructure development and manufacturers鈥 access to reliable and affordable energy.

A comprehensive strategy: In his remarks opening the event, 17吃瓜在线 President and CEO Jay Timmons discussed the five-pillar, comprehensive manufacturing strategy that the 17吃瓜在线 has been urging the Trump administration to implement.

  • 鈥淪ecretary Burgum, I just want you to know we鈥檝e been making the case for a聽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鈥攇oals that I know you share,鈥 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鈥攖o 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 .

An economic backbone: 鈥淢anufacturing, as you know, has been the backbone鈥 of the economy, Burgum said. 鈥淧resident Trump ran on bringing manufacturing back to the United States. His policies are driving to do that.鈥

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

  • The 鈥渞ecent 17吃瓜在线 LNG found that the U.S. LNG export industry could support more than 900,000 jobs and add $216 billion to GDP by 2044,鈥 he said.
  • Said Burgum: 鈥淲e are looking at everything to try to, for the first聽time, [have] streamlined government. … [and] it鈥檚 happening. It鈥檚 happening quickly.鈥

鈥淥ptimistic about the future鈥: The administration鈥檚 commitment to 鈥渓ow taxes and cutting red tape鈥濃攐n which President Trump鈥檚 recently created National Energy Dominance Council is focusing鈥斺渁re all things that are going to help lower your cost and create opportunities,鈥 Burgum continued.

  • 鈥淐apital is flowing to the U.S. at record levels.鈥 I鈥檓 very optimistic about the future.鈥

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

  • 鈥淵es, we care about developing our natural resources to power our economy, certainly through manufacturing, but it鈥檚 also about people, here in the United States and around the world,鈥 said Timmons. 鈥淭he 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鈥檚 very, very important for our future.鈥
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Factory Shipments Continue to Rise, Up 0.4%

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.

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Global Demand Weakens as Export Sales Decline for Ninth Month

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鈥檚 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鈥檚 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.

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Global Manufacturing Expands to Eight-Month High

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鈥 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鈥檚 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.

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Rising Commodity Prices Drive Up Manufacturing Costs

In February, the U.S. manufacturing sector expanded for the second consecutive month but at a slower pace, with the ISM Manufacturing庐 PMI falling to 50.3% from 50.9% the prior month. Customer demand weakened, output stabilized and inputs revealed signs of suppliers鈥 difficulty meeting accelerated delivery requests to head off increased tariff rates. The New Orders and Employment Indexes dropped back into contraction territory, declining to 48.6% and 47.6%, respectively. Production remained in expansion territory but weakened to 50.7%, 1.8 percentage points lower than January. Meanwhile, inventories (49.9%) and backlog of orders (46.8%) contracted at a slower pace in February.

The New Orders Index contracted after expanding for three consecutive months, a 6.5 percentage point drop from January. The index hasn鈥檛 shown consistent growth since a 24-month streak of expansion ended in May 2022, and respondents noted a weakening in demand, with four of the six major sectors鈥攑etroleum and coal products; machinery; chemical products; and food, beverage and tobacco products鈥攔eporting an increase in new orders.

The Production Index expanded for the second consecutive month. Prior to the past two months, the last time the index registered above 50% occurred in April 2024. Of the six largest manufacturing sectors, three鈥攆ood, beverage and tobacco products; transportation equipment; and chemical products鈥攔eported increased production.

The Employment Index decreased 2.7 percentage points in February, returning to contraction after expanding for a single month. Of the six largest manufacturing sectors, only one鈥攖ransportation equipment鈥攔eported increased employment. Companies continued to reduce headcounts through layoffs, attrition and hiring freezes.

The Prices Index rose 7.5 percentage points to 62.4%, indicating raw materials prices increased for the fifth straight month in February, driven by the dramatic rise in commodity prices as a result of new and potential tariffs. Steel, aluminum, copper, food elements, plastics and natural gas registered increases. More than 31% of companies reported paying higher prices, up from 21% in January.

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February Job Growth Falls Short of Expectations

Nonfarm payroll employment increased by 151,000 in February, slightly below the expectation of 170,000. In addition to the February gain being weaker than expected, January and December鈥檚 job gains were revised downward by a combined 2,000 jobs, with January鈥檚 gain revised downward by 18,000 and December鈥檚 gain revised upward by 16,000. The 12-month average stands at 162,250 job gains per month. The unemployment rate ticked up 0.1% to 4.1%, while the labor force participation rate edged down 0.2% to 62.4%.

Manufacturing employment rose by 10,000, but the January gain of 3,000 was revised downward to a loss of 5,000 jobs. The most significant gains in manufacturing in February occurred in motor vehicles and parts, which added 8,900 jobs over the month, recovering some of the 10,400 jobs lost in January. Meanwhile, the most significant losses occurred in computer and electronic product manufacturing, which shed 2,700 jobs over the month.

The employment-population ratio fell 0.2% to 59.9% and is down a slight 0.2 percentage points from a year ago. Employed persons who are part-time workers for economic reasons increased by 460,000 to 4.94 million and are up from 4.37 million in February 2024. Native-born employment is up 284,000 over the month and 1,544,000 over the year. Meanwhile, foreign-born employment is down 87,000 over the month but still up 685,000 over the year.

Average hourly earnings for all private nonfarm payroll employees rose 0.3%, or 10 cents, reaching $35.93. Over the past year, earnings have grown 4.0%. The average workweek for all employees and manufacturing employees stayed the same at 34.1 hours and 40.1 hours, respectively.

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