U.S. executives in the latest Manufacturing ISM Report On Business say economic activity in the manufacturing sector contracted in February for the fifth consecutive month, but that the overall economy grew for the 81st consecutive month.
Manufacturing contracted in February as the PMI registered 49.5 percent, an increase of 1.3 percentage points from the January reading of 48.2 percent, indicating contraction in manufacturing for the fifth consecutive month. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee states, “The past relationship between the PMI and the overall economy indicates that the average PMI for January and February (48.9 percent) corresponds to a 1.8 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI for February (49.5 percent) is annualized, it corresponds to a 2 percent increase in real GDP annually.”
A PMI above 43.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the February PMI indicates growth for the 81st consecutive month in the overall economy, while indicating contraction in the manufacturing sector.
ISM’s New Orders Index registered 51.5 percent in February, the same percentage as registered in January, indicating growth in new orders for the second consecutive month. ISM’s Production Index registered 52.8 percent in February, which is an increase of 2.6 percentage points when compared to the 50.2 percent reported for January, indicating growth in production in February for the second consecutive month.
“I see some very pleasant, very positive changes in the list and the only areas of any real concern are Exports being down — which is more of the same story due to the high price of the dollar,” explains Holcomb. “It’s not driving our economy. Imports of raw materials will start to come back up as new orders continue to poor in and we require those inventories.”
ISM’s Employment Index registered 48.5 percent in February, which is an increase of 2.6 percentage points when compared to the 45.9 percent reported for January, indicating contraction in employment for the third consecutive month, but at a slower rate of contraction than in January. An Employment Index above 50.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
“This month’s report is an overall positive view if you not only look at the numbers, but also the comments from the panel, which are more positive this month over last month on the whole,” adds Holcomb. “The numbers are pointing in the right direction, suggesting that the economy is growing and growing well for 81 consecutive months. It says that a PMI below 50 could be a passing phase for manufacturing that will be over soon.”
The monthly Manufacturing ISM Report on Business is based on the survey results of approximately 350 professionals across 18 different industry sectors. The report is released on the first business day of each month and features the PMI Index as its key measure. For more information on the Institute for Supply Management, visit www.ism.ws.