ISM reports a record-setting month for manufacturing in February

Growth in the manufacturing sector remained strong in February, according to data issued today in the Institute for Supply Management’s (ISM) monthly Manufacturing Report on Business.

The February PMI, the index used by the ISM to measure growth, came in a 57.7 (a reading of 50 or higher indicates growth), which was 1.7 percent ahead of January, marking the highest monthly PMI reading going back to August 2014’s 57.9. The PMI has now grown for the last six months, with the February PMI 4.9 percent higher than the 12-month average of 52.8 and the over all economy growing for the 93rd straight month.

ISM said that 17 of the 18 manufacturing sectors contributing to the report reported growth in February, including: Textile Mills; Apparel, Leather & Allied Products; Machinery; Computer & Electronic Products; Primary Metals; Plastics & Rubber Products; Nonmetallic Mineral Products; Chemical Products; Paper Products; Fabricated Metal Products; Transportation Equipment; Food, Beverage & Tobacco Products; Wood Products; Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Petroleum & Coal Products; and Miscellaneous Manufacturing, with Furniture & Related Products the lone contracting sector.

Including the PMI, three of the report’s other key metrics were up in January.

New orders, which are viewed as the engine driving manufacturing, jumped up 4.7 percent to 65.1, matching the previous high of 65.1 recorded in December 2013 while growing for the sixth month in a row. Production saw a 1.5 percent gain to 62.9 for its sixth straight month of growth and at its highest level since March 2011’s 64.2. Employment was the lone metric to show a decrease from January to February, but even though it was down 1.9 percent to 54.2, it remained on the right side of growth for the fifth straight month.

Comments submitted by ISM member respondents featured in the report were largely positive. A chemical products respondent said that business is improving and lead times are extending by two or more weeks. And a plastics & rubber products respondent noted that product demand continues to be solid.

“The business mood and consumer confidence levels have been growing, especially since the election,” said Brad Holcomb, chair of the ISM’s Manufacturing Business Survey Committee. “It reflects a business environment that is optimistic based on comments from the new president and administration. The stock market’s performance is also another reflection of that. There does not seem to be anything standing in the way of continuing this run up. I don’t want the PMI to get overheated, but at the same time staying at these kinds of levels would not be inconsistent with what I see in the comments or the numbers.”

Backlog of orders in February saw a significant gain, rising 7.5 percent to 57.0, and with production at its highest level in several months, Holcomb said that this increase was still not enough to really chew into the backlog, making things promising on that front for the coming months.

And inventories saw a 3 percent increase to 51.5, marking the first time in 20 months it has topped the 50 mark.

Holcomb explained this could be a turning point, as well as a reflection of strong confidence in manufacturing as it relates to a continuation of new orders coming online.

“You see the high backlog of orders and the production levels, and they want inventories to not fall short, and they are confident enough to get them up, following the run of 19 months below 50 in a lean strategy,” he said. “It really is meaningful. February is also the first time that new orders, production, employment, supplier deliveries, and inventories are all above 50.”

Supplier deliveries slowed at a faster rate for the tenth month in a row, rising 1.2 percent to 54.8 (a reading under 50 means contraction for this metric). This reading is mainly a byproduct of increasing new order activity and production.