Manufacturing contracts for 16th month
Economic activity in the manufacturing sector contracted in February for the 16th consecutive month following one month of “unchanged” status (a PMI reading of 50%) and 28 months of growth prior to that, say the nation's supply executives in the latest Manufacturing ISM Report On Business.
The report was issued April 1 by Timothy R. Fiore, CPSM, C.P.M., chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee:
“The Manufacturing PMI registered 47.8% in February, down 1.3 percentage points from the 49.1% recorded in January. The overall economy continued in expansion for the 46th month after one month of contraction in April 2020. (A Manufacturing PMI® above 42.5%, over a period of time, generally indicates an expansion of the overall economy.)
The New Orders Index moved back into contraction territory at 49.2%, 3.3 percentage points lower than the 52.5% recorded in January. The February reading of the Production Index (48.4%) is 2 percentage points lower than January’s figure of 50.4%. The Prices Index registered 52.5%, down 0.4 percentage point compared to the reading of 52.9% in January. The Backlog of Orders Index registered 46.3 percent, 1.6 percentage points higher than the 44.7% recorded in January. The Employment Index registered 45.9 percent, down 1.2 percentage points from January’s figure of 47.1 percent.
“The Supplier Deliveries Index figure of 50.1% is 1 percentage point higher than the 49.1% recorded in January. (Supplier Deliveries is the only ISM Report On Business index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The In-ventories Index decreased 0.9 percentage point to 45.3% from January’s reading of 46.2%.
“The New Export Orders Index reading of 51.6% is 6.4 percentage points higher than January’s figure of 45.2%t. The Imports Index continued in expansion territory, registering 53 percent, 2.9 percentage points higher than the 50.1% reported in Janu-ary. Both indexes reported their highest readings since July 2022, when the New Ex-port Orders Index registered 52.6% and the Imports Index 54.4%.”
Fiore continues, “The U.S. manufacturing sector continued to contract (and at a faster rate compared to January), with demand slowing, output easing and inputs remaining accommodative. Demand moderated, with the (1) New Orders Index back in contrac-tion as seasonal headwinds were too strong to overcome, (2) New Export Orders In-dex returned to expansion and (3) Backlog of Orders Index improving but still in mod-erate contraction territory. The Customers’ Inventories Index contracted for the third consecutive month, remaining accommodative for future production. Output (measured by the Production and Employment indexes) dropped, with a combined 3.2-percentage point downward impact on the Manufacturing PMI® calculation. Panelists’ companies maintained their production levels month over month, but that growth could not outpace seasonal factors. Head-count reductions continued in February, with no-table layoff activity noted. Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth but again showed signs of stiffening. The Supplier Deliveries Index improved again, moving into ‘slower’ territory, and the Inventories Index slid back due to inability for growth consistent with seasonal factors, remaining in moderate contraction territory. The Prices Index re-mained in moderate expansion (or ‘increasing’) territory as commodity driven costs continue to oscillate.
“Of the six biggest manufacturing industries, three (Fabricated Metal Products; Chemi-cal Products; and Transportation Equipment) registered growth in February. The first two are “foundational” industries, meaning those that provide products and compo-nents for other manufacturing industries.
“Demand is at the early stages of recovery, and production execution is relatively sta-ble compared to January, as panelists’ companies begin to prepare for expansion. Suppliers continue to have capacity but are showing signs of struggling, due in part to their raw material supply chains. Forty% of manufacturing gross domestic product (GDP) contracted in February, down from 62% in January. More importantly, the share of sector GDP registering a composite PMI® calculation at or below 45% — a good ba-rometer of overall manufacturing weakness — was 1% in February, compared to 27% in January and 48% in December. Among the top six industries by contribution to manufacturing GDP in February, none had a PMI® at or below 45 percent, compared to two in the previous month,” says Fiore.
The eight manufacturing industries reporting growth in February — in order — are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Primary Metals; Plastics & Rubber Products; Fabricated Metal Products; Chemical Products; Miscella-neous Manufacturing; and Transportation Equipment. The seven industries reporting contraction in February — in the following order — are: Furniture & Related Products; Machinery; Wood Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Paper Products; and Electrical Equipment, Appliances & Components.
WHAT RESPONDENTS ARE SAYING
- “Currently seeing increasing sales in our business. Most delivery dates are in the sec-ond quarter of 2024.” [Chemical Products]
- “The first quarter will be slower due to some customer order changes, but we are ex-pecting the rest of 2024 to be strong. We may increase our growth projections.” [Transportation Equipment]
- “Typical first quarter volume drops from fourth quarter high volumes. Additional distri-bution has allowed us to maintain consistent production shifts.” [Food, Beverage & To-bacco Products]
- “Customer softness continues in China, Japan and Europe.” [Computer & Electronic Products]
- “Demand has finally picked up, with customer orders more closely resembling typical January and February levels. January was up 22% compared to December; February up 26% compared to January.” [Machinery]
- “Customer orders are steady, neither up nor down compared to last month. This steady state is what we budgeted and forecast. We are forecasting business to increase 2% to 4% over the next couple of months.” [Fabricated Metal Products]
- “Business outlook overall is stable. Working through customer backlog with some raw material lead times improving.” [Miscellaneous Manufacturing]
- “We reflected on 2023 for maybe a minute and turned the page forward to 2024. Weather in January caused several operations to be idle, and shipments were affected.” [Nonmetallic Mineral Products]
- “The month seems to be getting stronger with each passing day and week. Lots of market volatility —pricing flat to downward. It will be interesting to see how the last days of the month play out, as indications seem to be all over the place.” [Primary Metals]
- “We are experiencing increased sales, which is putting pressure on the plant and as-sembly to meet new customer demand.” [Electrical Equipment, Appliances & Components]
INDUSTRIAL SUPPLY MAGAZINE
The November/December issue of Industrial Supply magazine features an in-depth cover story about Kimball Midwest. Plus, we're featuring articles by contributing writers Dirk Beveridge, Frank Hurtte, and Mike Marks, as well as interviews with numerous product and distribution industry experts.
