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Manufacturing Improves While Remaining in Contraction

Bill Koenig
By Bill Koenig Senior Editor, SME Media

Manufacturing in February improved while staying in economic contraction, the Institute for Supply Management said today.

The Tempe, Ariz.-based group’s manufacturing index, known as the PMI, rose to 47.7 percent last month up from 47.4 percent in January.

An index reading above 50 percent indicates economic growth while below that mark shows economic contraction.

February was the fourth consecutive month the PMI was in negative territory. Still, it was the first time the index showed improvement from a previous month since August 2022. That month, the PMI was 52.9 percent, rising from 52.7 percent in July 2022. The index has averaged 51.8 percent the past 12 months.

The PMI is based on a survey of executives in 18 industries. The index is considered a leading economic indicator and a barometer of where manufacturing is headed.

Four sectors reported expansion last month: apparel, transportation equipment, petroleum & coal products, and electrical equipment. Fourteen industries reported economic contraction, including primary metals, fabricated metal products, and machinery.

“Overall, demand looks pretty good,” Timothy R. Fiore, chair of ISM’s Manufacturing Business Survey Committee, said on a conference call. “I think we’re on the road to recovery on the demand side.”

Uncertainty remains, Fiore said, concerning the Federal Reserve and how long it will continue to boost interest rates. The Fed wants to cool the economy to reduce inflation.

“The issue now is inflation,” he said. “It’s not a decision we can make, we react to it.”

The group’s New Orders Index improved to 47 percent in February from 42.5 percent the month before. New orders are important because they set the stage for output later. Three industries reported an increase in orders: petroleum & coal products, transportation equipment, and miscellaneous manufacturing. Twelve industries reported a decline in orders.

ISM’s Production Index slipped to 47.3 percent last month from 48 percent in January. Four industries reported a gain in output with nine reporting production cuts.

The institute’s Employment Index declined into negative territory at 49.1 percent, down from 50.6 percent in January. Six industries reported job gains while four reported job cuts and eight industries reported no change.

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