ISM reports slight decline in February manufacturing data

February manufacturing data issued today by the Institute for Supply Management (ISM) dipped slightly compared to January, according to the most recent edition of the organization’s Manufacturing Report on Business.

The PMI, the ISM’s index to measure growth, dropped 0.6 percent to 52.9 (a PMI of 50 or greater represents growth), falling for the fourth straight month, since reaching 57.9 in October 2014. The PMI is 2.8 percent its 12-month average of 55.7.

Even with the recent declines, ISM said that economic activity in the manufacturing sector has grown for 26 straight months, while the over all economy has shown growth for the last 69 months.

Including the PMI, each of the report’s four key metrics was down in February. New orders, referred to as the engine that drives manufacturing, saw a 0.4 percent dip to 52.5, while showing growth for the 27th month in a row. Production was off 2.8 percent to 53.7 although it grew for the 30th month in a row, and employment dropped 2.7 percent decrease to 51.4 and remained in growth mode for the 21st straight month. Twelve of the 18 sectors reporting into the ISM said they experienced growth in February.

A major driver for the declines cited in the report was the months-long labor contract impasse between the Pacific Maritime Association and the International Longshore and Warehouse Union, which recently came to terms on a tentative five-year contract.

This situation led to delayed shipments and late deliveries out of West Coast ports, with the Port of Los Angeles and Port of Long Beach alone handling more than 40 percent of U.S.-bound imports.

Among the detriments the West Coast port situation caused for the manufacturing sector in February, according to ISM member respondents in the report, were exporting issues, needing airfreight an increased overtime to cover for products waiting to be offloaded at ports, and the chances of an actual strike, which remained a possibility prior to the deal being reached in late February.

Brad Holcomb, chair of the ISM Manufacturing Survey Business Committee, said the West Coast port issues were more of an operational nuisance for impacted manufacturers as opposed to a costs issue.

“Things seems to be clearing up with the ports, but it will take a while,” he said. “It will be one less thing to be concerned about as it has had some impact on imports and exports, with less of a need for workarounds and using airfreight to get things in time. Hopefully, it is going away.”

Looking at the February report, Holcomb said that the PMI at 52.9 was good relative to January at a slightly moderated growth rate and growing at a rate consistent with a 3.1 percent increase in real GDP.

The recent slide in the PMI came on the heels of a nine-month run, from April through December in which the PMI was firmly settled in the mid-50’s range or higher. Holcomb said the recent stretch of declines was expected in a sense, as the numbers cannot be expected to continue to rise or they will eventually plateau, due to the reality of the metric and the over all economy in general.

“We are doing better than the rest of the world,” he said. “The world continues to look at the U.S. for manufacturing, as well as services.

Supplier deliveries in February were up 1.4 percent to 54.3, with inventories up 1.5 percent to 52.5. Backlog of orders increased 5.5 percent to 51.5, and Prices were flat at 35.0.

The ongoing declines in oil and gas prices have aided manufacturing in terms of lower operating costs, and Holcomb said that is based on the high energy costs to run plants. The secondary effect is that these low prices also appear within commodities that are down in price, including resins, steel, and aluminum, he added.

“That is all a huge benefit to many of our manufacturing sectors,” he said. “The only ones taking a hit are the petroleum and coal products industry, which account for ten percent of total manufacturing GDP and the fourth largest one we track.”