PMI slips in February, but fundamentals remain solid
Manufacturing continues its expansion in February, but the monthly purchasing manufacturers’ index (PMI) from the Institute for Supply Management (ISM) receded 2.4 percentage points from January’s figure to its lowest level in more than two years.
The PMI slipped back to 54.2 percent in February, a fraction lower than December’s 54.3 percent correction and down from January’s 56.6 percent reading. Global trade and supply issues still weigh of committee members, but the overall outlook is generally positive.
“Comments from the panel reflect continued expanding business strength, supported by notable demand and output, although both were softer than the prior month,” said Timothy R. Fiore, chairman of the Institute for Supply Management’s Manufacturing Business Survey Committee.
Demand expansion continued, with the New Orders Index reaching the mid-50s, the Customers’ Inventories Index scoring lower and remaining too low, and the Backlog of Orders returning to a low-50s expansion level. Consumption (production and employment) continued to expand but fell a combined 8.9 points from the previous month’s levels. Inputs — expressed as supplier deliveries, inventories and imports — stabilized at a mid-50s level and had a slight negative impact on the PMI. Inputs continue to reflect an easing business environment, confirmed by Prices Index contraction.
“Exports continue to expand, at slightly stronger rates compared to January. The manufacturing sector continues to expand, but inputs and prices indicate easing of supply chain constraints,” Fiore said.
Committee members generally see a strong domestic economic market but remain concerned about tariffs and a potential slowdown in global trade. Among the committee member comments:
- “Strong domestics market. Slow export markets.” (Paper products)
- “Demand remains healthy at the beginning of 2019. However, growing concerns for what could be another round of tariffs in March are further escalating price increases of already constrained electronic components. Expect to see increased lead times and prices throughout Q1 and Q2.” (Computer & electronic products)
- “Strong start to the year, though weather has been a challenge.” (Chemical products)
- “Still fairly steady with production and services.” (Transportation equipment)
- “Economy showing general strength, especially in manufacturing. Cost pressures and tariff challenges persist but are manageable. General outlook is for stability and potential improvement in the second half of 2019.” (Food, beverage & tobacco products)
- “Orders remain strong. Supplier delivery continues to be challenged on some commodities.” (Machinery)
- “Aerospace engine-related business continues to be strong. Energy and general industry-related business is flat to down.” (Miscellaneous manufacturing)
- “Business so far this year is meeting, but not exceeding, our forecast. We are concerned about indicators showing a slight recession for the second half of the calendar year.” (Fabricated metal products)
- “Uncertainty of steel prices due to Section 232 tariffs on imported steel and lack of resolution of the anti-dumping trade cases.” (Petroleum & coal products)
- “General business conditions started to slow at the end of January, continuing through February.” (Plastics and rubber products)
The manufacturing sector has expanded for the past 30 months according to the PMI baseline of 50 percent. The index was below the 10 percent growth threshold for the second time in the past year. The PMI remains well above the overall economic growth level of 43.2 percent as it closes in on 10 consecutive years of economic expansion.
PMI: THE LAST 12 MONTHS