As expected, the Manufacturing ISM remained in contraction for a fifth straight month. The Econoday Consensus Estimate was 48.5 but a lift in new orders pushed the index up to a nearly break-even reading of 49.5.
Early indications on the February factory sector are all negative but the most closely watched one, ISM’s manufacturing index, perhaps shows the least weakness. The index rose 1.3 points to a 49.5 level that is nearly at 50.0, the breakeven level between positive and negative monthly change. This index hit 50.0 back in September and has since been underwater.
Not underwater, however, are new orders which held unchanged at a respectable enough level of 51.5. This index had been below 50 going into last year. Contraction in backlog orders slowed which is another plus though contraction in new orders for exports deepened slightly to 46.5 for the weakest reading since September. Employment has been very weak in this report but here to there’s improvement, up 2.6 points to 48.5. Production is also a positive in the report, up 2.6 points to 52.8 for the best reading since August last year.
This report should help limit concern that February was a breakdown month for what is still, however, a fragile factory sector.
ISM Manufacturing Index
Let’s dive into the ISM Report on Business for more details.
Contracting and Expanding Industies
Of the 18 manufacturing industries, nine are reporting growth in February in the following order: Textile Mills; Wood Products; Furniture & Related Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Chemical Products; Primary Metals; and Paper Products. The seven industries reporting contraction in February — listed in order — are: Apparel, Leather & Allied Products; Petroleum & Coal Products; Computer & Electronic Products; Printing & Related Support Activities; Transportation Equipment; Plastics & Rubber Products; and Fabricated Metal Products.
|Index||Feb||Jan||PP Change||Direction||Rate of Change||Trend in Months|
|Supplier Deliveries||49.7||50.0||-0.3||Fatster||From Unchanged||1|
|Customers’ Inventories||47.0||51.5||-4.5||Too Low||From Too High||1|
|Backlog of Orders||48.5||43.0||5.5||Contracting||Slower||9|
Manufacturing continues to struggle.
It’s difficult to tell by how much from a single diffusion index. Small companies count as much as larger companies. Moreover, a company having a single new order will offset another company with a reduction in new orders of 500 (or vice versa).
Together with the Fed regional reports though, also diffusion indices, we do have a clear picture of the sorry state of US manufacturing.
Mike “Mish” Shedlock