ISM reports strong February manufacturing data

The Institute for Supply Management (ISM) reported today that manufacturing output of February picked up where January left off: in a very good place.

The PMI, the index used by the ISM to measure manufacturing activity, was 54.2 in February, which was 1.1 percent better than February and stands as the single highest PMI level since June 2011, when it checked in at 55.8. A reading of 50 or higher indicates growth is occurring, and the PMI has now been over the 50 mark for the last three months.

Economic activity in the manufacturing sector had expanded for 34 straight months prior to contraction in June and overall economic activity has expanded for 45 straight months, according to ISM.

Along with PMI, two of the other three key metrics of the report were up in February.

New Orders—at 57.8—were up 4.5 percent over January, and Production was up 4.0 percent at 57.6. Employment dipped 1.4 percent to 52.6.

“Every since index is in the right direction,” said Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, in an interview. “We had the highest level of New Orders since 2011, which is encouraging. We are seeing more positive comments (from ISM survey respondents) this month than we have seen in a while. The overall tone in manufacturing is upbeat.”

The gain in Production, said Holcomb, represents a byproduct of both New Orders and Backlog of Orders, which went up 7.5 percent to 55.0 in February. This combination, he said, is a major facto in what is keeping manufacturing strong.

Prices saw a 5.0 percent rise to 61.5.

“It is not at all unexpected at this time of year for suppliers to come in and float their annual price increases,” said Holcomb. “This applies especially to diesel and gasoline at the moment and translates to other things like plastics and resins and even steel which takes a lot of energy to manufacture but last February Prices were identical to this February at 61.5 and in January 2011 it was 55.5. The annual increases are in a very similar pattern compared to a year ago overall. I don’t expect prices to be a problem overall this year. We are not concerned about raw materials prices in general.”

Inventories were up 0.5 percent to 51.5. Holcomb said it is likely that this figure will remain in this range and possibly dip into the high 40s, because there is always a concerted effort by manufacturers to be lean on inventories, but they don’t want to be short on inventories either, as manufacturers tend to finish the year light on inventories, followed by a loosening of purse strings in January as evidenced by gains in New Orders.

When asked how the current state of manufacturing matches up to the overall economy, Holcomb was succinct in his assessment, considering the ongoing mixed economic signals at play including low GDP growth and strong housing data, among others.

“Consumer sentiment is picking up, and that really translates into good news for manufacturing and other areas like retail that are tied into it,” he said. “Manufacturing is always driven by the consumer, and it sounds like the consumer is feeling pretty good right now.”