The ISM Manufacturing Index Retreated Again in February

Written by Peter Wright

The Institute of Supply Management released their February report on March 2nd. An explanation of this data set is given at the end of this piece. After the October surprise on the upside, the index slid back to 55.1 in December to 53.5 in January and to 52.9 in February. The three month moving average has declined for four straight months and now stands at 53.83, which is 1.5 points below the fourteen month average since January last year. The current value is still indicative of an expanding manufacturing sector. Any number >50 indicates expansion and this was the 30th straight month for which the 3MMA indicated growth (Figure 1).

Table 1 shows the break down for February by sub component with the monthly result, the 3MMA, the growth of the 3MMA m/m and y/y for each. The table shows that the growth of the 3MMA y/y slowed from negative 0.37 in December to negative 1.47 in January and to negative 1.57 in February. All sub-indexes except inventories had negative growth in three months through February compared to three months through January. The new orders sub-component had the greatest negative growth in February. Backlog, supplier deliveries and employment all reversed course from positive growth in December to contraction in January then continued to contract in February.

The official news release reads as follows:

PMI at 52.9 percent, New Orders, Employment and Production Growing, Inventories Growing Supplier Deliveries Slowing

(Tempe, Arizona) — Economic activity in the manufacturing sector expanded in February for the 26th consecutive month, and the overall economy grew for the 69th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee. “The February PMI registered 52.9 percent, a decrease of 0.6 percentage point from January’s reading of 53.5 percent. The New Orders Index registered 52.5 percent, a decrease of 0.4 percentage point from the reading of 52.9 percent in January. The Production Index registered 53.7 percent, 2.8 percentage points below the January reading of 56.5 percent. The Employment Index registered 51.4 percent, 2.7 percentage points below the January reading of 54.1 percent. Inventories of raw materials registered 52.5 percent, an increase of 1.5 percentage points above the January reading of 51 percent. The Prices Index registered 35 percent, the same percentage as in January, indicating lower raw materials prices for the fourth consecutive month. Comments from the panel express a growing level of concern over the West Coast dock slowdown, negatively impacting exports and imports and requiring workarounds and added costs.”

Of the 18 manufacturing industries, 12 are reporting growth in February in the following order: Paper Products; Printing & Related Support Activities; Furniture & Related Products; Primary Metals; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Fabricated Metal Products; Machinery; Transportation Equipment; Electrical Equipment, Appliances & Components; and Chemical Products. The three industries reporting contraction in February are: Textile Mills; Apparel, Leather & Allied Products; and Computer & Electronic Products.

What Respondents Are Saying

₋ “West Coast port issue has been a problem for exporting.” (Food, Beverage & Tobacco Products)
₋ “Business is steady to slightly up.” (Fabricated Metal Products)
₋ “The major concern for us across the board is the ongoing situation with the West Coast ports. Air freight and overtime have been required to cover for products waiting to be offloaded at the ports.” (Transportation Equipment)
₋ “Lower oil and natural gas prices continue to put pressure on our revenues. We continue to pursue capital budget cuts and rate reduction efforts with our suppliers.” (Petroleum & Coal Products)
₋ “The dock delay on the West Coast is seriously impacting the supply chain logistics.” (Computer & Electronic Products)
₋ “Kind of a mixed bag right now. Some product demand up, some down, basically flat.” (Chemical Products)
₋ “West Coast port congestion and work slowdowns by the union is hurting our imports and exports, getting worse by the week.” (Miscellaneous Manufacturing)
₋ “Customer behavior is being negatively impacted by ongoing resin price decreases. Order placement is being delayed to receive lower finished good pricing.” (Plastics & Rubber Products)
₋ “Business in general is staying its course. Concerns abound over strike possibilities by West Coast longshoremen.” (Machinery)
₋ “Improving and 2015 off to a good start.” (Furniture & Related Products)

Explanation: The Manufacturing ISM Report On Business is published monthly by the Institute for Supply Management, the first supply institute in the world. Founded in 1915, ISM exists to lead and serve the supply management profession and is a highly influential and respected association in the global marketplace. ISM’s mission is to enhance the value and performance of procurement and supply chain management practitioners and their organizations worldwide. This report has been issued by the association since 1931, except for a four-year interruption during World War II. The report is based on data compiled from purchasing and supply executives nationwide. Membership of the Manufacturing Business Survey Committee is diversified by NAICS, based on each industry’s contribution to gross domestic product (GDP). The PMI is a diffusion index. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. A PMI reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining. A PMI in excess of 42.2 percent, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 42.2 percent, it is generally declining. The distance from 50 percent or 42.2 percent is indicative of the strength of the expansion or decline. With some of the indicators within this report, ISM has indicated the departure point between expansion and decline of comparable government series, as determined by regression analysis.

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