Factories Are Still In A Funk, And Input Costs Keep Trying To Ruin The Vibe

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The ISM manufacturing index fell to 47.9 from 48.2, and anything below 50 is still contraction territory.

That makes it the tenth straight month of factories not thriving.

The weakness showed up in production and inventories pulling back, which is basically businesses saying they don’t want to build stuff they aren’t confident they can sell quickly.

There were a few less-bad signals.

New orders, backlogs, and employment ticked higher, but they are still below 50, so it’s more like a small cough, not a full recovery.

And among the big manufacturing groups, only computer and electronic products expanded, which tells you where the demand is still hanging on.

Now for the annoying part: prices. The prices index stayed elevated, which suggests raw materials costs have been rising for a long stretch.

That is the problem when growth is soft but inputs are still climbing.

It squeezes margins, forces companies to either raise prices or eat the cost, and gives the Fed another reason to be cautious about cutting rates too aggressively after the December move.

Tariffs and uncertainty are still part of the background noise.

When companies are unsure what costs will look like in three months, they get conservative with production schedules and hiring.

That keeps manufacturing stuck in a grind instead of a rebound.

So what’s the investor takeaway? In this kind of environment, you want businesses with one of two advantages:

• they can pass through costs without losing customers

• they can keep demand steady because they sell must-have industrial services or parts
  

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Actionable Stuff

• Avoid the fragile cyclical bets. If orders are still soft, the highly leveraged names get punished first.

• Favor pricing power. Companies that can raise prices without losing volume tend to win in cost pressure cycles.

• Own the toll booths. Distributors and service-heavy industrial models can hold up better than pure manufacturers.

• Think mission critical. Maintenance, safety, and compliance spend usually survives longer than new projects.

• Buy in pieces. Manufacturing headlines can swing fast—use that volatility instead of fearing it.

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Bottom Line

Factories are still in a slump, but input costs keep climbing, which is the worst combo for margin nerves.

The clean play is to avoid the fragile cyclicals and lean into businesses with pricing power, must-have demand, and service-heavy models that can stay resilient even when production stays cautious.