The US Purchasing Managers Index (PMI) for February was released late last week by the Institute for Supply Management (ISM), and came at a level of 47.8, down 1.3 percentage points from the 49.1 recorded in January, below the key 50 mark that separates US manufacturing expansion from contraction for the 16th straight month.
That as other measures such as recent job numbers and the stock market are more positive, as the economy continues to give mixed signals.
The PMI tracks closely but not exactly with the overall US economy, which continued to expand for the 46th month after one month of contraction in April 2020.
A Manufacturing PMI above 42.5, over a period of time, generally indicates an expansion of the overall economy.
The other PMI numbers we track were mixed, but generally were negative.
That starts with the New Order Index, which moved back into contraction territory at 49.2, 3.3 percentage points lower than the 52.5 score recorded in January, in a bad sign for future US manufacturing activity.
The February reading of the Production Index was two percentage points lower than January’s figure of 50.4, also dropping back into contraction status.
The Prices Index registered 52.5, down 0.4 percentage point compared to the reading of 52.9 percent in January, but above the 50 mark.
That means companies saw a rise in the cost of components, materials and other inputs (below 50 = falling prices), as inflation concerns remain.
In more bad economic news, the Backlog of Orders Index came in at 46.3, 1.6 percentage points higher than the 44.7 recorded in January. .That means the order book of most companies is shrinking, with the level still well below the 50 mark.
“The Supplier Deliveries Index figure of 50.1 is one percentage point higher than the 49.1 seen 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 decreased 0.9 percentage point to 45.3 from January’s reading of 46.2, with the score below 50 indicating inventory levels at companies are again decreasing.
Said Timothy Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee: “The US manufacturing sector continued to contract (and at a faster rate compared to January), with demand slowing, output easing and inputs remaining accommodative. Demand moderated, with the New Orders Index back in contraction as seasonal headwinds were too strong to overcome, while the New Export Orders Index returned to expansion and the Backlog of Orders Index improving but still in moderate contraction territory.
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As always, the ISM report provides a graphic of the full PMI scores the last 12 months, which as can be seen shows the measure has been below the key 50 mark each and actually from November 2022, and it is now averaging just 47.2 over the past year.
Source: ISM
Of the 28 sectors tracked by ISM, eight reporting growth in February. They were, in order: apparel, leather & allied products; nonmetallic mineral products; primary metals; plastics & rubber products; fabricated metal products; chemical products; miscellaneous manufacturing; and transportation equipment.
As always, there were some interesting comments from PMI survey respondents.
“Currently seeing increasing sales in our business. Most delivery dates are in the second quarter of 2024,” said one manager in the chemicals sector.
Added one respondent in the fabricated metals sector: “Customer orders are steady, neither up nor down compared to last month. This steady state is what we budgeted and forecast. We are forecasting business to increase 2 percent to 4 percent over the next couple of months.”
Finally, a manager in the electrical equipment, appliances & components sector noted that “We are experiencing increased sales, which is putting pressure on the plant and assembly to meet new customer demand.”
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