Economic activity in the manufacturing sector grew in February, and the overall economy grew for the 130th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.
“Comments from the panel were generally positive, with sentiment cautious compared to January,” said Timothy R Fiore, chair of the ISM Business Survey. “The PMI remained in expansion territory, but at a weak level. Demand slumped, with (1) the New Orders Index contracting at a weak level, despite new export order expansion, (2) the Customers’ Inventories Index remaining at ‘too low’ status and (3) the Backlog of Orders Index expanding for the first time in several months, but at a slow rate.
“Consumption (measured by the Production and Employment indexes) contributed negatively (a combined 3.7-percentage point decrease) to the PMI calculation. Inputs—expressed as supplier deliveries, inventories and imports—strengthened in February, due primarily to supplier deliveries expanding, offset partially by inventories declining.
“Despite imports contraction returning at a strong rate, inputs contributed positively to the PMI calculation, a reversal from the previous month.”
The February PMI registered 50.1%, down 0.8 percentage point from the January reading of 50.9%.
Other highlights from the report:
- The New Orders Index registered 49.8%, compared to the January reading of 52%.
- The Production Index registered 50.3%, compared to the January reading of 54.3%.
- The Backlog of Orders Index registered 50.3%, compared to the January reading of 45.7%.
- The Employment Index registered 46.9%, compared to the January reading of 46.6%.
- The Supplier Deliveries Index registered 57.3%, compared to the January reading of 52.9%.
- The Inventories Index registered 46.5%, compared to the January reading of 48.8%.
- The Prices Index registered 45.9%, compared to the January reading of 53.3%.
- The New Export Orders Index registered 51.2%, compared to the January reading of 53.3%.
- The Imports Index registered 42.6%, compared to the January reading of 51.3%.
“Prices returned to contraction, at moderately strong levels,” Fiore added.
Primary metals, miscellaneous manufacturing, fabricated metal products and machinery were among 14 manufacturing industries reporting growth in February. Transportation equipment was one of three industries reporting contraction.
“Global supply chains are impacting most, if not all, of the manufacturing industry sectors,” Fiore concluded. “Among the six big industry sectors, Food, Beverage & Tobacco Products remains the strongest, followed by Computer & Electronic Products. Petroleum & Coal Products is the weakest.
“Overall, sentiment this month is marginally positive regarding near-term growth.”
Here are some selected comments from respondents:
- “There are always supply chain challenges with Lunar New Year shutdowns, and this year is no different. Coronavirus is wreaking havoc on the electronics industry. Companies are delayed in starting up production, which is resulting in longer lead times, constraints and increased pricing. It’s a mad dash to dual source stateside in case China isn’t back online soon.” (Computer & Electronic Products)
- “January started out strong, but the effects of the virus in China [and] the continued grounding of the 737 Max have suppressed new orders. We are still expected to be flat to slightly up [year-over-year] for 2020 sales, based on those issues.” (Chemical Products)
- “Layoffs are here.” (Transportation Equipment)
- “Coronavirus and its impact on the supply chain: We will see some softness in demand, but also [experience] havoc on items sourced from China that may cause significant delays to production.” (Food, Beverage & Tobacco Products)
- “Energy markets seem to be responding to a potential drop in demand that may be related to responses [to] the coronavirus.” (Petroleum & Coal Products)
- “Coronavirus continues to be front and center as a major supply chain risk to our company. Access to information in China—from our supply base and customers—is slow to come by.” (Fabricated Metal Products)
- “Sales continue to be strong, with the supply base able to support as required. The major concern is the China virus and what that crisis could affect in getting parts. The company is putting plans in place to source out locations, especially in the US, for parts.” (Machinery)
- “Business continues to be strong. We had a little January slowdown, but February has been fantastic.” (Plastics & Rubber Products)
- “We have seen an increase of sales for our products.” (Furniture & Related Products)
- “Current favorable forecast to budget for first-quarter sales.” (Primary Metals)