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ISM reports steady manufacturing growth for February, despite bad weather

By Jeff Berman, Group News Editor
March 03, 2014

Manufacturing activity showed growth for the ninth consecutive month, according to the Institute for Supply Management’s (ISM) Report on Business, which was released earlier today.

The PMI, the index used by the ISM to measure manufacturing activity, increased 1.9 percent to 53.2 in February, which is 0.6 percent below the 12-month average of 53.8 and its third-lowest reading since last May’s 50.0. The PMI is still over the 50 mark—which is the benchmark of strong economic activity—in 14 of the last 15 months, coupled with
the overall economy growing for 57 straight months, according to the ISM.

For the report’s four key metrics, including PMI, two were up, one dropped and one was flat. New Orders, often known as the engine driving manufacturing, rebounded from a 13.2 percent decrease from January to increase 3.3 percent in February to 54.5. Production was down 6.6 percent to 48.2, and Employment was flat at 52.3.

As was the case in January, the effects of the harsh winter weather cannot be underestimated when looking at manufacturing data specifically.

This was evident in some comments offered up by ISM members in the report. An apparel, leather, and allied products respondent said that “cold weather is having an impact on our business. Orders are down,” and a petroleum and coal products respondent noted that bad weather is hampering logistics across the country.

But it was not all negative feedback either, with a transportation equipment respondent pointing to higher than normal demand for this time of year, and a machinery respondent citing how conservative optimism is rekindling with conditions steady.

As was the case in January, the effects of the harsh winter weather cannot be underestimated when looking at manufacturing data specifically.

This was evident in some comments offered up by ISM members in the report. An apparel, leather, and allied products respondent said “cold weather is having an impact on our business. Orders are down,” and a petroleum and coal products respondent noted that bad weather is hampering logistics across the country.

But it was not all negative feedback either, with a transportation equipment respondent pointing to higher than normal demand for this time of year, and a machinery respondent citing how conservative optimism is rekindling with conditions steady.

“The weather impact has primarily shown up in the production data,” said Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee. “The reason is that new orders are up, with comments in the report largely positive, weather aside, with consistent themes in increased growth and demand. Production can be impacted by [weather-related] things like certain plant closings, the inability to get all workers to the job and raw materials inventory, due to shipping and weather problems, and backups at ports. That seems to be the story behind February production, with things hopefully getting better as the weather improves in the spring.

Inventories jumped up 8.5 percent to 52.5 in February (42.5 and above represents expansion, according to the ISM) on the heels of two contracting months, and February is the largest month-over-month inventory increase going back to March 1988, when it jumped 9.1 percent.

Holcomb said that is clearly not a number seen very often for inventories, explaining it is likely a byproduct of production being down for mostly weather-related reasons, which, in turn, built inventories up as companies are subsequently not producing as much as they would lie to or planned. Another factor, he said, is a “mix” problem with inventories, when there are too much of some products and not enough of other things that allow a company to produce its expected monthly allotment because of shipping and transportation-related issues.”

“For example, if you are going to build an automobile, you need all the right parts and pieces to do so,” he said. “That is the mix problem along with the simple fact that production is down, leading to the unusual anomaly in the inventory increase.”

Backlog of Orders headed up 4.0 percent to 52.0 and that increase was also related to production, according to Holcomb. Production was down in the face of growing new orders and growing backlog in February, which Holcomb said was peculiar and not planned, as well as weather-related.

“Normally, you would be chewing into new orders and old orders, removing the backlog, and that did not happen,” he said.

Holcomb said the underlying direction of manufacturing at the moment is all positive and is apparent in the report’s comments, with the expectations that things should continue to move in the right direction.

Sterne Agee Chief Economist Lindsey Piegza was somewhat less optimistic in a research note.

“While weather does play a role, impending capacity and slowing consumer foot traffic, the directionless trend in manufacturing has been in place for some time ahead of the unfavorable winter weather making it difficult to point to weather alone as the cause of the tepid pace of activity,” wrote Piegza. “Going forward manufacturing will continue to struggle amid tepid domestic demand and minimal growth abroad.”

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


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