The US Purchasing Managers Index (PMI) for February was released this week by the Institute for Supply Management (ISM), and came in at a level of 50.3, down from 50.9 in January, but still just above the key 50 mark that separates US manufacturing expansion from contraction.
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| The Inventories Index registered 49.9, up 4 percentage points compared to January’s reading of 45.9, but still just below the 50 level. The last time the Inventories Index registered above 50 percent was in August. |
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That means the score was about the 50 level for the second consecutive month, after a long 26-month stretch of contraction.
ISM says that the overall economy continued in expansion for the 58th month after one month of contraction in April 2020. The PMI itself tracks closely but not exactly with the overall US economy.
A Manufacturing PMI above 42.3, over a period of time, generally indicates an expansion of the overall economy, according to ISM.
The other PMI numbers we track were mixed.
Surprisingly, the New Orders Index dropped back into contraction territory after expanding for three months, registering 48.6, a big 6.5 percentage points lower than the 55.1 recorded in January, in bad news for future US manufacturing activity.
The February reading of the Production Index (50.7) was 1.8 percentage points lower than January’s figure of 52.5. However, that means the index expanded for the second month in a row after eight months in contraction.
The Prices Index soared in the month, registering 62.4, up a sharp 7.5 percentage points compared to the reading of 54.9 in January. That means companies saw increased costs for components, materials and other inputs for the fifth straight month in February (above 50 = rising prices).
However, the Backlog of Orders Index registered 46.8, up 1.9 percentage points compared to the 44.9 recorded in January. indicating order backlogs contracted for the 29th consecutive month after a 27-month period of expansion, with the index level still well below the 50 mark.
The Supplier Deliveries Index indicated further slowing deliveries, registering 54.5, 3.6 percentage points higher than the 50.9 recorded in January.
Supplier Deliveries is the only ISM index that is inversed, with a reading of above 50 indicating slower deliveries, which is typical as the economy improves and customer demand increases - or the reverse.
The Inventories Index registered 49.9, up 4 percentage points compared to January’s reading of 45.9, but still just below the 50 level. The last time the Inventories Index registered above 50 percent was in August, with the score below 50 indicating inventory levels at companies are decreasing.
Said Timothy Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee: “Demand eased, production stabilized, and de-staffing continued as panelists’ companies experience the first operational shock of the new administration’s tariff policy. Prices growth accelerated due to tariffs, causing new order placement backlogs, supplier delivery stoppages and manufacturing inventory impacts. Although tariffs do not go into force until mid-March, spot commodity prices have already risen about 20 percent.”
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As always, the ISM report provides a graphic of the PMI scores the last 12 months, which as can be seen show the past two months over 50 after a long stretch of contraction since November 2022. It is now averaging just 48.6 over the past year.
Source: ISM
Of the 18 sectors tracked by ISM, 10 reported growth in February and - listed in order - are: Petroleum & Coal Products; Miscellaneous Manufacturing; Primary Metals; Wood Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Chemical Products; Plastics & Rubber Products; Fabricated Metal Products; and Transportation Equipment.
As always, there were some interesting comments from PMI survey respondents.
“The tariff environment regarding products from Mexico and Canada has created uncertainty and volatility among our customers and increased our exposure to retaliatory measures from these countries,” said one manager in chemicals sector.
Similarly, one manager in the transportation equipment sector stated that “Customers are pausing on new orders as a result of uncertainty regarding tariffs. There is no clear direction from the administration on how they will be implemented, so it’s harder to project how they will affect business.”
Finally, a manager in the plastics sector noted that “Internal analysis ongoing about impact of tariffs, but nothing concrete yet. General business conditions remain tepid; outlook on the durables side growing more pessimistic with growing domestic inventories of automobiles.”
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