U.S. manufacturing increased in February, though at a moderately slower pace than in January, the Institute for Supply Management (ISM) said today in its monthly report on the nation’s production activity.
The Purchasing Managers’ Index (PMI), the compilation of the report’s 10 different sub-categories and its headline number, fell 2.4 percentage points from January to 56.6 percent, ISM said. A PMI reading of 50 or higher typically indicates an expanding economy. However, the PMI has been in a steadily downward trend since March 2018, when it stood at more than 59.3 percent. The peak of the last 11 months was at 60.8 in August.
New orders declined 2.7 percentage points to 58.2 percent, according to the ISM report. Production declined to 54.8 percent, a 5.7 percentage point decrease. Inventories rose slightly to 52.8 percent. Prices paid fell slightly to 49.4 percent, the second straight month of declines in raw materials prices after nearly three years of increases.
Timothy R. Fiore, who chairs the committee that assembles the report, said the data, combined with anecdotal evidence from supply and purchasing executives, “reflect continued expanding business strength, supported by notable demand and output, although both were softer than the prior month.” Demand continued to expand, while end customer inventories – either at the wholesale or retail levels – remained too low, indicating that there isn’t a glut of end product, Fiore said.
Order backlogs expanded during February despite the softening of new order growth, “an indication that manufacturing struggled to keep up with incoming demand,” Fiore said.
Inputs, characterized by ISM as supplier deliveries, inventories and imports, stabilized at levels that Fiore said underscore an “easing business environment.” Exports expanded at a slightly faster rate than January levels, he added.
Comments from executives included in the report indicated a resilient manufacturing economy with ongoing concerns about how the U.S.-China trade dispute will play out. The Trump Administration delayed a scheduled March 1 tariff increase on $200 billion in Chinese imports to 25 percent from 10 percent in the hope that an agreement can be reached sometime this month.
A computer and electronic products executive, who as with all commenters in the ISM report is unidentified, may have summed it up best by saying that demand “remains healthy” as the year starts, but that “growing concerns for what could be another round of tariffs in March are further escalating price increases of already constrained electronic components.” The executive said to expect to see increased lead times and higher prices through the first half of the year.
The ISM report is considered credible because it measures real-time activity of executives who manage about $1 trillion in annual corporate and government supply chain procurement.