March 13, 2024

Report On Business® Roundup: February Manufacturing PMI®

With spring training well underway, a baseball term is appropriate to describe the impact of the Manufacturing ISM® Report On Business® for February on analysts and investors after the data was released on Friday.

For observers hopeful that the U.S. manufacturing sector might crawl out of its lengthy period of contraction, the composite PMI® reading was a brushback pitch — 47.8 percent, under expectations and a 1.3-percentage point decrease compared to January’s reading.

But Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® Manufacturing Business Survey Committee, continued his recent bullish outlook in a conference call with reporters, saying that manufacturing is ready to “begin a growth cycle” and citing raw numbers that improved month over month in February, as well as positive panelist sentiment.

Much of that progress was somewhat masked by index numbers impacted by seasonal factors. “Everything still feels like it’s headed in the right direction,” Fiore said. “Unfortunately, the PMI® number came down a bit in February because performance was not as strong as the seasonal factors indicated it should be. But we’ve been talking about the first half of the year being a bit bumpy, and this is one of those bumps.”

Seasonal factors are included in Manufacturing ISM® Report On Business® data calculation “to allow for the effects of repetitive intrayear variations resulting primarily from normal differences in weather conditions, various institutional arrangements and differences attributable to non-moveable holidays,” the report states. In February, such a factor was leap day, which provided a not-insignificant 5-percent increase in working hours compared to a 28-day month.

The biggest impact was perhaps on the New Orders Index, one of the five that directly factors into the PMI®. In February, 24.4 percent of Business Survey Committee respondents reported an increase new order levels at their companies, while 17.4 percent noted a decrease — down from 23.5 percent in January.

That’s typically not a recipe for an index reading in contraction territory, but a 4.3-percentage point seasonal-factor headwind, Fiore said, pushed the New Orders Index down to 49.2 percent. “(The sector) covered a lot of ground,” Fiore said, “but not enough ground to overcome the seasonal factor.”

In February, three data points were most encouraging, Fiore said:

  • Seasonal factors impacted the Production Index, which fell into contraction territory at 48.4 percent. However, Fabricated Metal Products and Chemical Products reported growth in February, which is notable because they are (1) among the six largest manufacturing industries and (2) “foundational,” meaning they provide products and components across the sector.
  • The share of sector GDP with a composite PMI® calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 1 percent in February, compared to 27 percent in January and 48 percent in December.
  • The Inventories Index (45.3 percent) remained in contraction, but manufacturing companies are showing a willingness to invest in building their stocks, a good sign of executives’ confidence that demand will increase.

“I still feel pretty good about the PMI® breaking 50 percent in March or April because the fundamentals are there,” said Fiore, who added that 17 percent of panelists’ comments cited soft demand, down from 34 percent in November.

In other news, the Imports Index (53 percent) and New Exports Index (51.6 percent) both hit their highest levels since July 2022. Increased imports activity was expected due to Lunar New Year, Fiore said, but the New Exports Index number was somewhat of a surprise due to continuing economic challenges in such markets as China and Europe.

Source: ISM
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.