Barking tariff uncertainties start to bite: PMI, construction spending

BARKING TARIFF UNCERTAINTIES START TO BITE: PMI, CONSTRUCTION SPENDINGOn the first trading day of a new month, investors were treated to an advance preview of the potentially damaging effects of President Trump's global tariff spat. Activity at U.S. factories expanded in February, but only just.The Institute for Supply Management's (ISM) purchasing managers' index (PMI) (USPMI=ECI) landed at 50.3, weaker than January's 50.9 print, which itself was the index's first expansionary reading since October 2022.A PMI above 50 indicates monthly expansion.Wading through the subcomponents, new orders and employment retreated into contraction, inventories stabilized, and prices paid - an inflation predictor - surged 7.5 points to 62.4, its highest reading since June 2022."Demand eased, production stabilized, and destaffing continued as panelists' companies experience the first operational shock of the new administration's tariff policy," writes Timothy Fiore, chair of ISM's Manufacturing Business Survey Committee."Prices growth accelerated due to tariffs, causing new order placement backlogs, supplier delivery stoppages and manufacturing inventory impacts," Fiore adds.In the survey respondents' comments, the words "uncertainty" and "tariffs" and "inflation" are peppered throughout.Not to be ignored, S&P Global also issued its final take on January PMI (USMPMF=ECI), updating its mid-month "flash" released mid-month. At 52.7, the number was raised by 1.1 points, a more robust acceleration than the 51.6 originally reported.It marked the index's highest reading in 32 months.But don't get used to it, S&P Global warns us."There's much to suggest that this improvement could be short lived," says Chris Williamson, chief business economist at S&P Global, who says that the spike can be attributed to "companies and their customers building inventory to beat price hikes and supply issues caused by tariffs." Those tariffs "were widely reported as having caused factory input costs to spike higher in February," Williamson continues. "These higher costs are being passed on to customers, resulting in the strongest factory gate price inflation recorded for two years."S&P Global's index differs from ISM's in the weight they give to their various components.Here's how closely the dueling PMIs agree (and not):Separately, U.S. construction outlays (USTCNS=ECI) unexpectedly contracted by 0.2% in January, according to the Commerce Department.Analysts expected no change on the heels of December's 0.5% gain.Below the headline, private sector spending dipped 0.2% while public projects inched up 0.1%. Expenditures on residential projects, which in months passed was the driver of much gains in construction spending and does double-duty as a housing market indicator, dropped by 0.4%. This data agrees with recent data showing drops in housing starts and homebuilder sentiment, among other metrics."We believe uncertainty is dragging down all economic activity, including construction spending," says Carl Weinberg, chief economist at High Frequency Economics. "We think construction projects are on hold until the impact of the Trump tariffs on prices and growth is understood."Construction materials like softwood lumber, steel, and copper are imported," Weinberg reminds us. (Stephen Culp) *****FOR MONDAY'S EARLIER LIVE MARKETS POSTS:U.S. STOCKS MIXED AFTER DATA, EYE TARIFFS - CLICK HERELOW VOLATILITY, MOMENTUM MAKE AN EARLY MOVE - CLICK HEREEUROPEAN DEFENCE SECTOR: MORE GAINS ON THE HORIZON? - CLICK HERECHINA STOCKS, WHAT'S NEXT AFTER 40% RALLY? - CLICK HERECRYPTOCURRENCIES HAVE THEIR "TRUMP PUT" - CLICK HEREDEFENCE NAMES SURGE, BROADER MARKET MIXED - CLICK HEREEUROPE BEFORE THE BELL: FUTURES HIGHER, MARKETS SET FOR DEFENCE BOOST - CLICK HERETRUMP FLAGS CRYPTO RESERVE, MUM ON FUNDING - CLICK HERE