Manufacturing Rate of Growth Drops Slightly in February

So far, 2019 has been a bumpy ride for U.S. manufacturers. After advancing in January, the nation’s leading factory index cooled down in February. New orders, production and employment all declined from January levels, according to the Institute for Supply Management (ISM), and the PMI dropped 2.4 percentage points to 54.2%.

As long as the PMI remains above 50, the manufacturing industry continues to expand. “We are still in the comfortable range with the PMI—54 is fine,” said Tim Fiore, chair of the ISM’s Manufacturing Business Survey Committee. “We’ve seen it go up—it will be in the 56 range—and then down to 54. The current level is consistent with the 2.9% GDP growth we saw for 2018.”

However, new orders declined 2.7% to 55.5; production dropped by 5.7% to 54.8; employment slowed 3.2%age points to 52.3; and supplier deliveries registered 54.9 percent, a 1.3 percentage point decrease from January’s 56.2%.

“We saw a similar drop in December,” Fiore said, “and the biggest drop was the new orders number. At that time, we saw a lot of negatives—a capex drop; tariff uncertainty and softening lead times—but there was no one-to-one correlation in February.” February is a short month, he pointed out; this year characterized by a streak of bad weather.

“On the demand side, 55.5 is still a good number,” Fiore said. “The only industry that didn’t help [boost that] was transportation, and that was due to heavy-duty trucks. Manufacturers seem to be clearing out their inventory. The automotive, airplane and train segments are still doing well. I'm also encouraged by a 2% increase in backlog [to 52.3%].”

Consumption, measured by production and employment, continued to expand but fell a combined 8.9 points from the previous month’s levels. February’s steep production decline is related to the short month and a streak of bad weather. Factories were closed during a nation-wide deep freeze in February and school closings forced many workers to stay home. The government shutdown did not impact February’s manufacturing numbers, but the services industry likely suffered, Fiore said.

Inputs — expressed as supplier deliveries, inventories and imports — stabilized at a mid-50s level but had a slight negative impact on the PMI. Inputs continue to reflect an easing business environment, confirmed by the prices index contraction. The prices index registered 49.4%, a 0.2-percentage point decrease from the January reading of 49.6%.

Overall, manufacturers were positive about February and tariff concerns seem to be easing. “Demand remains healthy at the beginning of 2019,” said one executive in the computer and electronic products sector. “However, [there are] growing concerns for what could be another round of tariffs in March, [which are] further escalating price increases of already constrained electronic components.” The electronics industry will continue to see long lead times and increased prices through the first half, the executive added. Capacitors have been scarce for 20 months; electronic components for 10; and resistors for 16, according to the ISM.

Bloomberg reported Monday that the U.S. and China are closer to a trade deal as long as Beijing follows through on pledges ranging from better protecting intellectual-property rights to buying a significant amount of American products. One of the remaining sticking points is whether the tariffs would be lifted immediately or over a period of time to allow the U.S. to monitor whether China is meeting its obligations, the news agency said.

U.S. exports expanded in February at a slightly stronger rate than January. “The manufacturing sector continues to expand, but inputs and prices indicate easing of supply chain constraints,” Fiore concluded.

2 comments on “Manufacturing Rate of Growth Drops Slightly in February

  1. ThomasMaloney
    March 26, 2019

    I'm actually quite surprised that the manufacturing industries have been slowing down. But then again, given the nature of the state of international affairs at the moment, I think that a lot of industries are just uncertain what the demands are going to be looking like for international trade. It will probably like this for a while more even though domestic demand remains high…

  2. EdwardThirlwall
    March 29, 2019

    This is what happens to every industry out there. There are times when orders see a spike which constitutes to a good headcount stability, whereas on other occasions, the demand could dip and that directly affects manpower needs as well. Employers know of such trends so they have to get a good plan in place to delegate their staff accordingly.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.