- The February ISM manufacturing index rose to 60.8, higher than market expectations of 58.8. This marked a 2.1 percentage points increase from the January reading of 58.7.
- New orders increased by 3.7 percentage points to 64.8, while new export orders went up by 2.3 percentage points to 57.2. The backlog of orders sub-index came at 64.0, a 4.3 percentage points jump compared to January.
- Consumption – measured by production and employment sub-indices – contributed positively. Put together, the production (+2.5) and employment (+1.8) sub-indices soared 4.3 percentage points.
- The supplier deliveries sub-index rose to 72.0 from 68.2 in January. The sub-index continues to reflect difficulties in maintaining delivery rates due to production issues related to the pandemic.
- Of the 18 manufacturing industries, 16 reported growth in February. The two industries reporting contraction were: Printing & Related Support Activities and Petroleum & Coal Products.
Key Implications
- The overall economy registered the ninth consecutive month of growth. The manufacturing sector recorded the biggest monthly jump since the start of the pandemic. The expansion was broad-based, with new orders, production and employment registering strong growth compared to January. Meanwhile, the jump in supplier deliveries and inventories continues to indicate supply shortages. These shortages are one of the reasons why the price index jumped by +3.9 ppts compared to January.
- Optimism regarding fiscal stimulus and vaccine roll-outs is contributing to the manufacturing sector’s unabated recovery. But digging deeper into the details takes off some of the sheen. The labor market remains the weak link in an otherwise stronger-than-expected start to the new year for the manufacturing sector. Meanwhile, several other obstacles still lie in the path to a sustained recovery. These include still-elevated hospitalization rates, cutbacks in business investment and unequal vaccine distribution. While the manufacturing sector’s performance in February is something to cheer about, it remains susceptible to another wave of new cases, renewed restrictions and setbacks in vaccine administration.
