MAPI: February Manufacturing Drop More Than Cold Weather
Following is an analysis from Cliff Waldman, senior economist for the Manufacturers Alliance for Productivity and Innovation (MAPI) on today's ISM index:
As expected, the Insitute for Supply Management reported a bounceback in manufacturing activity during the month of February. Nonetheless, the overall ISM Index rose a modest 1.9 percentage points after a sharp and alarming 5.2 percentage point decline in January. Further, the new orders component only rose 3.3 percentage points after plunging 13.2 percentage points in January. Disconcertingly, the production index, which fell by 6.9 percentage points in January, declined by another 6.6 percentage points in February to 48.2 percent, indicating a contraction in production activity.
Clearly, the sharp drop in the overall ISM index in January was more than just the result of unusually severe winter weather. Inventories had gotten well ahead of demand in the latter months of 2013. While it appears that stocks are now coming back into balance, manufacturing growth is still likely to be slower in the first half of 2014 than in the fourth quarter of 2013. The global recovery remains fragile and U.S. economic growth continues to disappoint. While there was an encouraging acceleration of equipment investment growth in the fourth quarter of 2013, capital spending remains volatile and uncertain, reflecting the many uncertainties in the global economy and in the U.S. policy environment.
With all of the noise in the data from recent months, it remains clear that the most likely path for U.S. manufacturing during 2014 remains one of positive but moderate growth.