Material handling and manufacturing industry data expanded but decelerated in February 2025. The Institute for Supply Management manufacturing index expanded for a second consecutive month for the first time since October 2022, while the MHI Business Activity Index by Prestige Economics reflected expansions across most categories, including business activity, new orders, future new orders, shipments, unfilled orders, and capacity utilization. Only inventories and exports contracted for the month. Over the next two years, there are reasons to be optimistic because a drop in interest rates and a likely accompanying decline in the dollar are likely to support material handling and manufacturing. However, tariff policies have added significant downside risks to the growth outlook while also presenting elevated inflation risks.
Material Handling Industry Data Was Strong But Slowed In February
Material handling data was strong but slowed in the Mar. 3, 2025, release of the February 2025 MHI Business Activity Index by Prestige Economics — known in shorthand as the MHI BAI. This is the most real-time economic data available for the U.S. material handling industry.
The material handling industry is comprised of manufacturers, technology providers, and other suppliers who provide the hardware and software to move goods through the U.S. and global supply chains. Data in the MHI BAI comes from leading executive leadership members of MHI, which is the largest material handling, logistics, and supply chain association in the United States.
U.S. manufacturing expanded in February as the Institute for Supply Management manufacturing index fell to 50.3 from 50.9 in January. The February reading was above the breakeven of 50, and it represented the first time the ISM conveyed two consecutive monthly expansions since October 2022. This series is a key leading indicator of U.S. economic growth, and its January and February expansions bode well for U.S. Q1 2025 GDP despite the implications of recently soft consumer confidence and elevated tariff risks.
The MHI BAI also bodes well for Q1 2025 GDP since January and February data collected from MHI executives reflected expansions across most categories. The February MHI BAI was a solid report, although it weakened modestly from the January 2025 MHI BAI report.
Material Handling Shipments Expanded In February
Shipments have been consistently expanding over the past few years in MHI BAI reports. In February, MHI BAI shipments expanded, as 57% of respondents reported expansions in shipments and only 43% reported contractions.
MHI BAI series readings above 50 indicate that a majority of the respondents reported increased monthly activity, while readings below 50 indicate a majority of respondents noted decreased activity.
New orders were also positive and expanded, as 52% of respondents reported monthly expansions in new orders. This reading was close to the breakeven of 50, and it repflected a deceleration from the expansion in February. Despite expansions over the latest five consecutive months through February, new orders have been mixed over the past two years, reflecting expansions in 14 of the past 24 months. Meanwhile, shipments have contracted only five times in the past 24 months.
Unlike shipments, unfilled orders and inventories have been persistently weak.
Unfilled orders expanded in February, as 62% of respondents reported monthly expansions and 38% reported contractions. Persistently weak, unfilled orders have only expanded seven times in the past 24 months.
Inventories contracted in February, as only 29% of respondents noted monthly expansions, but 71% noted contractions. February showed the 17th consecutive monthly contraction in inventories, which expanded just twice in the past 24 months.
The trend over the past two years of the relative strength of shipments compared to the weakness of new orders, unfilled orders, and inventories appears to indicate that companies have been burning off their backlogs and running down work-in-progress inventories.
Strong Material Handling Future New Orders Decelerated
MHI BAI future new orders have been strong and were at 90% in February. This percentage shows that almost all respondents expect future new orders will be higher in 12 months. Since this monthly series decelerated modestly in February, the three-month average for the future new orders series decelerated to 92%, and the six-month average decelerated to 93%.
These expansion percentages are exceptionally high and bode well for the future of material handling new orders in the year ahead.
Beyond the strength in future new orders, there is additional upside potential for material handling activity in the year ahead. Interest rates have started falling and are likely to fall further through the end of 2026, according to recent Federal Reserve member forecasts. A drop in U.S. interest rates and a likely accompanying drop in the dollar are likely to support material handling and manufacturing on trend over the next two years.
Material Handling Outlook Implications For The U.S. Economy
In making predictions about the future of the U.S. economy, both the ISM and MHI BAI data should be watched closely because growth dynamics for material handling offer a glimpse into consumption and aggregate economic demand.
With high expectations for future new orders along with expanding current new orders, the outlooks for material handling, supply chain, and manufacturing are positive for 2025.
Recent MHI BAI reports have shown solid expansions for new orders and future new orders. If those series remain positive, the overall outlook for U.S. manufacturing, material handling, and gross domestic product are also likely to be positive.
Tariff Risks For Material Handling And Manufacturing
Tariff risks could significantly dampen the outlook for U.S. manufacturing and material handling, although that will depend on the implementation and duration of U.S. and reciprocal tariffs.
The U.S. tariffs that have just been enacted on Canada and Mexico seem likely to add inflationary pressure to parts of the material handling and manufacturing supply chains. Tariff increases could also slow economic activity. Since the Trump administration has been using tariffs as a means of international policy leverage, it is conceivable that if Canada and Mexico make concerted efforts and meaningful progress toward supporting U.S. national security and economic security goals, tariff increases may be in place for only a limited period of time. However, the longer they are in place, the greater the inflationary impact and the greater the potential to weigh on GDP growth.
What do you think of recent U.S. manufacturing and material handling data against a backdrop of tariff risks?
Let me know in the comments below.
Also, be sure to subscribe to my YouTube channel and visit Prestige Economics and The Futurist Institute for additional content about the economy, financial markets, supply chain, manufacturing, and material handling.