The February ISM manufacturing index registered 47.7, slightly below expectations calling for a 48.0 print. The index rose 0.3 percentage points (pp) from January’s reading of 47.4.
New orders rose 4.5 pp to 47.0, while new export orders were relatively flat, rising slightly to 49.9.
The backlog of orders sub-index rose to 45.1, up 1.7 pp from January’s 43.4 print.
The production index fell 0.7 pp to 47.3, extending its decline, while the employment index edged down 1.5 pp to 49.1.
The supplier deliveries sub-index fell to 45.2 from 45.6 in January. Meanwhile, the prices index rose a sharp 6.8 pp to 51.3 in February – indicating rising raw materials prices.
Only 4 of 18 manufacturing industries reported growth in February. The industries reporting growth are Apparel, Leather & Allied Products; Transportation Equipment; Petroleum & Coal Products; and Electrical Equipment, Appliances & Components.
Key Implications
As expected, the ISM manufacturing index showed the sector contracted in February. This really isn’t all that surprising given the circumstances – a one-two punch of high interest rates and a rotation of consumer spending back to services. Looking at some of the details, the new orders subindex continues to show declining demand – albeit at a noticeably slower pace than in January.
Our recent work has highlighted the multitude of headwinds facing the manufacturing sector as 2023 rolls along. The confluence of higher rates, slowing demand in key trading partners, and consumers that have spent the last few years stocking up on stuff are making for a challenging medium-term landscape for goods producers. However, several factors such as pent-up auto demand, rising military spending, and large investments in the automotive and semiconductor space should help keep a floor under the manufacturing sector as it goes over the latest bump.
