Manufacturing Index Up but Sector Still Contracting

Small increase is likely due to some resumption of production in the auto sector after the long holiday closures

The Insitute for Supply Management (ISM) reported on March 2 that U.S. manufacturing contracted in February as the PMI registered 35.8%, which is higher than the 35.6% reported in January. This is the 13th consecutive month of contraction in the manufacturing sector.

"The only good news in today's ISM report is that manufacturing did not fall further from the depths it reached in January," said Thomas J. Duesterberg, CEO of the Manufacturers Alliance/MAPI. "The small increase in the index is likely due to some resumption of production in the auto sector after the long holiday closures. But manufacturing is still mired in the worst downturn since the 1973-74 recession, and there is little on the horizon to suggest improvement. Construction and exports continued to weaken in February, the decline in capital spending is at near depression levels, and business confidence remains weak.

"Our projections suggest that inventory liquidation, low interest rates, global stimulus programs, and pent-up demand may lead to stabilization and weak growth late in this year, but huge risks still remain for this scenario," Duesterberg added.

Other findings from the report include:

  • The New Orders Index registered 33.1% in February, compared to the 33.2% registered in January.
  • The Production Index registered 36.3% in February, compared to January's reading of 32.1%.
  • The Employment Index registered 26.1% in February, compared to 29.9% reported in January.
  • The Inventories Index registered 37%, compared to January's reading of 37.5%.
  • The ISM Prices Index registered 29% in February, the same as reported in January. While 7% of respondents reported paying higher prices and 49% reported paying lower prices, 44% of supply executives reported paying the same prices as the preceding month.
  • The Imports Index registered 32%, compared to 36.5% reported in January.
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