February US ISM Index Remains Flat, Prices Increase Significantly

Economic activity in the US manufacturing sector expanded in February for the second straight month but only the third time in 40 months, according to the latest ISM Manufacturing PMI Report. The Manufacturing PMI registered 52.4 percent in February, a 0.2 percentage point decrease compared to the January reading. Of the five subindexes that make up the PMI, two (New Orders and Production) indicated slower growth compared with the previous month, while the Employment and Inventories indexes remained in contraction.

Three demand indicators (New Orders, Backlog of Orders, and New Export Orders) were in expansion. New Orders expanded for the second straight month after four straight readings in contraction, registering 55.8 percent, but were down 1.3 percentage points compared to January’s figure. The Backlog of Orders Index registered 56.6 percent, up 5 percentage points compared to January and its highest reading since May 2022. The New Export Orders Index reading of 50.3 percent was 0.1 percentage point higher than the January reading. The Customers’ Inventories Index remained in “too low” territory, contracting at a slightly slower rate. A “too low” status for the Customers’ Inventories Index is usually considered positive for future production.

Regarding output, the Production Index was in expansion for the fourth month in a row but came in at 2.4 percentage points lower than January’s reading. The Employment Index, also still in contraction, improved by 0.7 percentage point to 48.8 percent. However, 45 percent of panelists indicated that managing head counts is the norm at their companies as opposed to hiring.

Inputs, defined as supplier deliveries, inventories, prices and imports, all increased compared with the previous month’s reading. The Supplier Deliveries Index indicated further slowing for the third month in a row. The Inventories Index registered 48.8 percent, up 1.2 percentage points compared to January’s reading and indicative of slower contraction. The Prices Index took a major 11.5 percentage point leap to 70.5 percent from January. The Imports Index registered 54.9 percent, 4.9 percentage points higher than January’s reading and the highest since February 2022.

Twenty-one percent of the sector’s gross domestic product (GDP) contracted in February, compared with 20 percent in January, and the percentage of manufacturing GDP in strong contraction (defined as a composite PMI of 45 percent or lower) decreased to 1 percent, compared to 12 percent in January.

Of the six largest manufacturing industries, four (Chemical Products; Machinery; Transportation Equipment; and Computer & Electronic Products) expanded in February. The 12 manufacturing industries reporting growth in February—listed in order—were: Printing & Related Support Activities; Textile Mills; Primary Metals; Nonmetallic Mineral Products; Chemical Products; Machinery; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Transportation Equipment; Plastics & Rubber Products; Miscellaneous Manufacturing; and Computer & Electronic Products. The five industries reporting contraction in February were: Apparel, Leather & Allied Products; Furniture & Related Products; Petroleum & Coal Products; Wood Products; and Food, Beverage & Tobacco Products.

The report was completed prior to the weekend’s escalation of the Middle East conflict. ISM estimates that petroleum-related industries account for 5.6 percent of total manufacturing GDP and that 20 percent of the oil consumed in the US goes through the Middle East.

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