The February ISM manufacturing index released by the United States on Wednesday (1st) reported 47.7, shrinking for the fourth consecutive month, lower than market expectations of 48, but slightly higher than the previous value of 47.4. There were signs, however, that factory activity was starting to stabilize, with a measure of new orders picking up from a more than two-and-a-half-year low.
February US ISM manufacturing index breakdown:
- New orders index reported 47.0, the previous value of 42.5
- The production index reported 47.3, the previous value was 48.0
- The employment index reported 49.1, the previous value of 50.6
- The supplier delivery index reported 45.2, the previous value of 45.6
- The inventory index reported 50.1, the previous value was 50.2
- The client inventory index reported 46.9, the previous value was 47.4
- The price index reported 51.3, the previous value of 44.5
- Unfilled orders index reported 45.1, the previous value of 43.4
- Export orders index reported 49.9, the previous value of 49.4
- The import index of raw materials reported 49.9, the previous value was 47.8
Looking at the sub-items of the index, the new order index jumped to 47 from 42.5 last month, the lowest since May 2020; the unfinished order index rose to 45.1 from 43.4 last month, showing that the number of orders has also improved, but it is still in a low-level range . In February, the supplier delivery index reported 45.2, the previous value was 45.6, little changed. A reading below 50 indicates faster factory deliveries.
It is worth noting that the price index rose sharply to 51.3 in February from 44.5 in the previous month, implying that inflation may remain at its peak for some time. Despite the improvement in supply and weak demand, inflation continued to rise. Both the US Consumer Price Index (CPI) and Producer Price Index (PPI) showed significant monthly growth in January.
In terms of employment, the employment index fell to 49.1 in February from 50.6 in the previous month, below the 50 line of expansion and contraction, which means that the job market is cooling. However, the index’s fluctuations are not a good predictor of manufacturing employment, and factory employment is mostly growing at a healthy pace.
For the manufacturing industry, this data may indicate that the worst period has passed, and the manufacturing index in February improved from the previous month. In addition, the data released by the U.S. Department of Commerce recently showed that orders for key production capital goods in January recorded the largest increase in five months, while orders for so-called core capital goods also rebounded, and spending on durable goods in the United States also rebounded in January.
However, a quick turnaround in the manufacturing sector is unlikely as the US Federal Reserve (Fed) is forecast to continue raising interest rates. Manufacturing has also been weakened by the dollar’s past appreciation against the currencies of major U.S. trading partners and weak global demand.
Another data released on the same day showed that the final value of the U.S. Purchasing Managers Index (PMI) in February was 47.3, slightly lower than the 47.8 expected by the market, but higher than the previous value of 46.9.
S&P Global Chief Economist Chris Williamson said that the US manufacturing sector was still under enormous pressure in February. Although the PMI rose slightly for the month, it was still the worst decline since the months of the new crown epidemic blockade.
Williamson also pointed to the good news in the report that factory employment growth picked up slightly, companies made progress filling vacancies, and improvements in supply chains helped reduce input cost inflation.
However, rising wage pressures and companies’ efforts to boost profit margins meant that the average price of manufactured goods rose sharply again and inflation accelerated for a second straight month, suggesting price pressures remained stubbornly high.