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ISM Report: Manufacturing Activity Improves Slightly But Still Continues to Shrink

March 1, 2023
"In the last two months, the Manufacturing PMI has been at its lowest levels since May 2020," says Timothy Fiore.

Manufacturing economic activity contracted for the fourth consecutive month, according to the Institute for Supply Management’s February 2023 manufacturing sector report. Results were better than in January, but the index remains mired in negative territory.

The Purchasing Manager’s Index came in 0.3 points higher last month than the January report at 47.7%. Anything lower than 50% represents contraction. The new orders index, although 4.5 points higher than the January figure, kept its contractions status at 47%. The employment index fell 1.5 points into contraction territory, and the production index reading dropped 0.7 points compared to the previous month.

After four months below 50%, the prices index figure climbed up 6.8 points to 51.3%, making its way into increasing territory.

“With Business Survey Committee panelists reporting softening new order rates over the previous nine months, the February composite index reading reflects companies continuing to slow outputs to better match demand for the first half of 2023 and prepare for growth in the second half of the year,” notes Timothy Fiore, chair of the ISM’s manufacturing business survey committee.

In the comments of the survey, one executive in transportation equipment notes, “There is concern for the global supply chain now that we are restricting sales of some semiconductors to China.”

On Tuesday, the U.S. Commerce Department announced more restrictions regarding the semiconductor industry in foreign countries of concern. Recipients of federal funds to expand semiconductor manufacturing will be restricted from growing manufacturing capacity in these countries, including China.

Some survey respondents echo the uncertain outlook seen in last month’s report. One respondent, an executive in nonmetallic mineral products, notes, “While there are lingering concerns about a recession, we are not expecting a large drop-off in manufacturing this year. Worst case is flat.”

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