February Manufacturing Activity Grows, but Disappoints

Purchasing managers index shows news orders, production rose, but rate slows

U.S. manufacturing activity increased in February, according to the Institute for Supply Management’s Purchasing Managers’ index, but the rate of growth declined for the first time in three months. The news disappointed analysts, who suggested a range of explanations involving higher fuel and raw materials prices, and less robust consumer activity, for the slower rate of domestic manufacturing.

The ISM PMI index measures monthly manufacturing activity according to data collected from purchasing managers across a 18 industries, including chemicals, primary metals, machinery, petroleum/coal products, computers/electronics, paper products, plastics/rubber products, electrical equipment/appliances, and several more.

February’s PMI figure was 52.4, down from 54.1 in January; a reading of 50.0 or greater indicates expansion, but the rate of growth and the trend were taken as an indicator of manufacturing vulnerability. For example, though all new manufacturing orders increased across all industries, the index fell 2.7 percentage points from the January result. Even so, February was the 34th consecutive month of growth in new manufacturing orders.

"Prices of raw materials increased for the second consecutive month,” noted Bradley J. Holcomb, chairman of the ISM Manufacturing Business Survey Committee, “with the Prices index registering 61.5%. As was the case in January, new orders, production, and employment all grew in February — although at somewhat slower rates than in January. Comments from the panel continue to reflect a generally positive outlook for the next few months."

The survey’s production index decreased by 0.4 percentage point from January, which was the 33rd straight month of growth for that measurement.

Manufacturing exports showed an impressive increase, which is seen as evidence that European financial concerns have not yet affected U.S. manufacturers.

The strongest elements of the U.S. manufacturing sector appear to be automotive, appliances, and computers/electronics.

A PMI in excess of 42.6%, over a period of time, indicates an expansion of the overall economy, according to ISM, so the February PMI indicates the overall U.S. economy grew for the 33rd consecutive month, and the manufacturing sector grew for the 31st consecutive month.

"The past relationship between the PMI and the overall economy indicates that the average PMI for January and February (53.3%) corresponds to a 3.6% increase in real gross domestic product (GDP),” Holcomb stated. “In addition, if the PMI for February (52.4%) is annualized, it corresponds to a 3.3% increase in real GDP annually."

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