Manufacturing Didn't Grow in February

Strong export sector can't offset domestic slowdown.

Manufacturing failed to grow in February as the PMI registered 48.3%, a decrease of 2.4 percentage points when compared to January's seasonally adjusted reading of 50.7%, according to the Institute for Supply Management.

A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

"Todays ISM report confirms that even the strong export sector cannot offset the overall domestic slowdown due in large part to weak residential construction, weak auto sales, and a growing credit crunch, said Thomas J. Duesterberg, CEO of the Manufacturers Alliance/MAPI. Factory orders reported last week also showed weakness in computer and information technology output, and sluggishness in overall business investment. High commodity prices, especially for energy and metals, are also starting to erode profit margins. Monetary and fiscal stimulus will cushion the slowdown, but additional policy measures both here and abroad may be needed to bring us out of recession.

The Production Index declined to 50.7% in February, a decrease of 4.5 percentage points when compared to January's.

Manufacturers' inventories contracted in February as the Inventories Index registered 45.4%, which is 3.7 percentage points lower than January's seasonally adjusted reading of 49.1%.

The ISM Prices Index registered 75.5% in February, indicating manufacturers are paying higher prices on average, though at a slightly slower rate, when compared to January. While 55% of respondents reported paying higher prices and 4% reported paying lower prices, 41% of supply executives reported paying the same prices as the preceding month.

"The manufacturing sector failed to grow during the month as the PMI fell below 50%, which indicates weaker performance in February when compared to January. Manufacturers' order backlogs continue to erode as the New Orders Index remained below 50 % for the third consecutive month. With the Inventories and Customer Inventories Indexes indicating that manufacturing inventories are at reasonable levels, the major concern is rising prices and falling volume," explains Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee.

New Export Orders Index registered 56% in February, a decrease of 2.5 percentage points when compared to January's index of 58.5%. While imports of materials by manufacturers contracted during February as the Imports Index registered 47.5%, 5 percentage points lower than the 52.5% reported in January.

The Employment Index registered 46% in February, which is a decrease of 1.1 percentage points when compared to January's seasonally adjusted reading of 47.1%.

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