by Robert Hughes
The Manufacturing Purchasing Managers’ Index from the Institute for Supply Management registered a 54.2 percent reading in February, down from 56.6 in January (see top chart). Despite the pullback, the index remains well above neutral, suggesting continued expansion for the manufacturing sector. According to the Institute for Supply Management, “A PMI above 42.9 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the February PMI indicates growth for the 118th consecutive month in the overall economy and 30th straight month of growth in the manufacturing sector.”
Among the key components of the Purchasing Managers’ Index, the New Orders Index came in at 55.5 percent, down from 58.2 in January (see bottom chart). February was the 34th consecutive month with readings above 50. Analysis by the Institute for Supply Management suggests that readings above 52.5 for a period of time are consistent with rising real new orders for manufacturers.
The production index was at 54.8 percent in February, down from 60.5 in January. February marks the 30th month in a row above 50. The results suggest production grew in February but the pace was slower than January. Weather may have been a factor in the slower pace of production, according to Timothy R. Fiore, chair of the Institute for Supply Management Manufacturing Business Survey Committee. The slower pace of expansion also contributed to an increase in the backlog-of-orders index. That index rose to 52.3 in February versus 50.3 in January, suggesting backlogs grew at a faster pace.
The employment index fell to 52.3 percent in February, down from 55.5 in January (see bottom chart). Despite the slightly lower reading, the result suggests employment in manufacturing likely rose in February. The Bureau of Labor Statistics’ Employment Situation report for February is due out on Friday, March 8. Consensus expectations are for 185,000 new nonfarm-payroll jobs including 10,000 new jobs in manufacturing.
Supplier deliveries, a measure of delivery times from suppliers to manufacturers, came in at 54.9, down from 56.2 in January. February was the 36th consecutive month above 50, and the results suggest suppliers delivering to manufacturers are falling behind but at a decelerating pace.
The prices index fell 0.2 percentage points to 49.4 in February from 49.6 in January. Two months below 50 represents a sharp turn-around in price pressures in that the price index has fallen from a recent high of 79.5 in May 2018.
Customer inventories in February are still considered too low, with the index falling to 39.0 from 42.8 in the prior month (index results below 50 indicate customers’ inventories are too low). Among manufacturers, only one category reported customers’ inventories as too high: apparel, leather, and allied products.
Today’s report from the Institute for Supply Management suggests the manufacturing sector continued to grow in February. Despite pullbacks in the latest month, solidly positive readings for new orders, production, and employment suggest a positive outlook for manufacturing. Those results are in line with other recent data that point to ongoing expansion for the overall economy.
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Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.