Economic activity in the manufacturing sector contracted in February for the fourth consecutive month following a 28-month period of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.
The report was issued today by Timothy R. Fiore, CPSM, C.P.M., chair of the Institute for Supply Management® (ISM) Manufacturing Business Survey Committee.
“The February Manufacturing PMI registered 47.7%, 0.3 percentage point higher than the 47.4% recorded in January. Regarding the overall economy, this figure indicates a third month of contraction after a 30-month period of expansion. In the last two months, the Manufacturing PMI has been at its lowest levels since May 2020, when it registered 43.5%. The New Orders Index remained in contraction territory at 47%, 4.5 percentage points higher than the figure of 42.5% recorded in January. The Production Index reading of 47.3% is a 0.7-percentage point decrease compared to January’s figure of 48%. The Prices Index registered 51.3%, up 6.8 percentage points compared to the January figure of 44.5%. The Backlog of Orders Index registered 45.1%, 1.7 percentage points higher than the January reading of 43.4%. The Employment Index dropped into contraction territory, registering 49.1%, down 1.5 percentage points from January’s 50.6%. The Supplier Deliveries Index figure of 45.2% is 0.4 percentage point lower than the 45.6% recorded in January; readings from the last three months are the index’s lowest since March 2009 (43.2%). The Inventories Index registered 50.1%, 0.1 percentage point lower than the January reading of 50.2%. The New Export Orders Index reading of 49.9% is 0.5 percentage point higher than January’s figure of 49.4%. The Imports Index continued in contraction territory at 49.9%, 2.1 percentage points above the January reading of 47.8%.”
Fiore continues, “The U.S. manufacturing sector again contracted, with the Manufacturing PMI® improving marginally over the previous month. With Business Survey Committee panelists reporting softening new order rates over the previous nine months, the February composite index reading reflects companies continuing to slow outputs to better match demand for the first half of 2023 and prepare for growth in the second half of the year. Demand eased, with the (1) New Orders Index contracting at a slower rate, (2) New Export Orders Index still below 50% but continuing to improve, (3) Customers’ Inventories Index remaining at ‘too low’ levels, a positive for future production and (4) Backlog of Orders Index recovering for a third month but still in moderate contraction. Output/Consumption (measured by the Production and Employment indexes) was negative, with a combined 2.2-percentage point downward impact on the Manufacturing PMI calculation. The Employment Index returned to contraction after two months of expansion, and the Production Index logged a third month in contraction territory. Panelists’ companies continue to indicate that they will not substantially reduce head counts, as sentiment is positive about the second half of the year, though slightly less so compared to January. Inputs — defined as supplier deliveries, inventories, prices and imports — continue to accommodate future demand growth. The Supplier Deliveries Index indicated faster deliveries, and the Inventories Index expanded at a slower rate as panelists’ companies manage their total supply chain inventories. The Prices Index jumped back into ‘increasing’ territory after four consecutive months below 50%, supporting agreement between buyers and sellers to place orders in the near term.
“Of the six biggest manufacturing industries, two — Transportation Equipment; and Petroleum & Coal Products — registered growth in February.
“New order rates remain sluggish due to buyer and supplier disagreements regarding price levels and delivery lead times; the index increase suggests progress in February. Panelists’ companies continue to attempt to maintain head-count levels through the projected slow first half of the year in preparation for a stronger performance in the second half. Eighty-two percent of manufacturing gross domestic product (GDP) is contracting, down from 86% in January. In February, fewer industries contracted strongly: The share of sector industries with a composite PMI calculation at or below 45% — a good barometer of overall manufacturing sluggishness — was 10%, an improvement compared to 26% in January,” says Fiore.
The four manufacturing industries that reported growth in February are: Apparel, Leather & Allied Products; Transportation Equipment; Petroleum & Coal Products; and Electrical Equipment, Appliances & Components. The 14 industries reporting contraction in February, in the following order, are: Printing & Related Support Activities; Paper Products; Wood Products; Textile Mills; Furniture & Related Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Chemical Products; Primary Metals; Computer & Electronic Products; Fabricated Metal Products; Machinery; and Miscellaneous Manufacturing.
To read the complete report, click here.