March 1, 2018

February 2018 ISM Manufacturing: 60.8 Percent, Up From 59.1 Percent in January; Highest Reading Since 2004

Filed under: Economy — Tom @ 5:49 pm

From the Institute for Supply Management (most paragraph breaks added by me; bolds are mine):

PMI® at 60.8%

New Orders, Production, and Employment Growing
Supplier Deliveries Slowing at Faster Rate; Backlog Growing
Raw Materials Inventories Growing; Customers’ Inventories Too Low
Prices Increasing at Faster Rate; Exports and Imports Growing

Economic activity in the manufacturing sector expanded in February, and the overall economy grew for the 106th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

… The February PMI® registered 60.8 percent, an increase of 1.7 percentage points from the January reading of 59.1 percent.

The New Orders Index registered 64.2 percent, a decrease of 1.2 percentage points from the January reading of 65.4 percent. The Production Index registered 62 percent, a 2.5 percentage point decrease compared to the January reading of 64.5 percent.

The Employment Index registered 59.7 percent, an increase of 5.5 percentage points from the January reading of 54.2 percent. The Supplier Deliveries Index registered 61.1 percent, a 2 percentage point increase from the January reading of 59.1 percent.

The Inventories Index registered 56.7 percent, an increase of 4.4 percentage points from the January reading of 52.3 percent. The Prices Index registered 74.2 percent in February, a 1.5 percentage point increase from the January reading of 72.7 percent, indicating higher raw materials prices for the 24th consecutive month.

Comments from the panel reflect expanding business conditions, with new orders and production maintaining high levels of expansion; employment expanding at a faster rate to support production; order backlogs expanding at a faster rate; and export orders and imports continuing to grow faster in February. Supplier deliveries continued to slow (improving) at a faster rate. Price increases occurred across most industry sectors. The Customers’ Inventories Index indicates levels remain too low. Capital expenditure lead times improved by five days while production material supplier lead times extended four days during the month of February.”

Of the 18 manufacturing industries, 15 reported growth in February, in the following order: Printing & Related Support Activities; Primary Metals; Machinery; Computer & Electronic Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Fabricated Metal Products; Chemical Products; Transportation Equipment; Textile Mills; Miscellaneous Manufacturing; Paper Products; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products.

Two industries reported contraction during the period: Apparel, Leather & Allied Products; and Furniture & Related Products.

A key comment:

“It seems the tax break for business is making a difference. Customers are spending more for capital equipment.” (Machinery)

The overall reading is the highest since May of 2004.

Production and New Orders stayed in the 60s. Their drops from January’s levels are probably good things, because January levels, if sustained, would probably be overheated.

Great news is in Backlog of Orders, which at 59.8 percent, is almost certainly at one of its highest levels in the past 15 years. The high result in this underappreciated metric should mean that for the first time in many, many years more manufacturers, with months of orders in hand, can plan their production runs over a longer term and can achieve more efficiencies, productivity gains, and cost reductions.

Zero Hedge points out that the Markit Manufacturing Index, at 55.3 percent, has stronger signs of possible inflationary pressures. But that’s why the drops in New Orders and Production seen in the ISM report represent good news.


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