Manufacturing activity bounced back in February, with implications for truck tonnage
Data from the Institute of Supply Management showed that US factories expanded at the fastest pace in nearly fourteen years, as the manufacturing purchasing manager’s index rose 1.7 points to 60.8 in February. This exceeds consensus expectations of a slight decline to 58.6, as manufacturing continues to grow at a healthy pace in the economy.
Details in this morning’s report were also encouraging. Of the 18 manufacturing industries surveyed for the ISM manufacturing index, only two (apparel and furniture) reported a decline in activity during the month. Most subcomponents of the index experienced higher readings in February, with particularly big jumps in the employment and inventory categories. New manufacturing orders did experience a bit of a decline in February, although like the durable goods orders report from Wednesday, this was a decline from elevated levels and not necessarily a sign of significant trouble in upcoming months.
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On ISM manufacturing data and freight markets
The Institute of Supply Management creates its index by surveying purchasing managers on various aspects of business conditions and reporting the percentage of respondents that say that activity is expanding. While this is not “hard” economic data in that it doesn’t directly track the manufacturing of goods in the economy, historically results from the ISM manufacturing index tie closely to manufacturing industrial production growth released by the Federal Reserve. As such, the ISM data serves as a timely first indication of the health of the manufacturing sector.
For freight markets, manufacturing is one of the key origination points for the flow of goods throughout the US economy. The combination of manufactured goods, imports from other countries, and things that are currently in inventory are transported through various modes to meet the demand in the economy.
Because of this, there is been a close link between manufacturing health and movements in trucking and other types of freight. Looking at historical data, there is a fairly close correlation between the results from the ISM manufacturing index and year-over-year growth in truck tonnage in the economy.
The strengthening in the manufacturing sector has been one of the factors driving some of the recent challenges in the industry, as carriers continue to face tight capacity and a shortage of drivers.
Behind the Numbers
ISM manufacturing data is always among the first views of the state of the economy in the previous month, and results from ISM data often help set an early tone for the state of the economy. Data in January saw quite a few surprises on the downside, with weak results in industrial production, retail sales, and trade to name a few.
Given the general backdrop of the economy, much of the weakness in January might be attributable to temporary factors like cold winter weather or adjustments to the recent passage of the Tax Cuts and Jobs Act. The strength in this morning’s ISM report is a step in that direction as the economy looks to maintain its momentum.