PMI falls in February; manufacturers concerned about coronavirus

The Purchasing Managers’ Index (PMI) fell 0.8 percentage points to 50.1% in February as economic activity in the manufacturing sector grew but at a slower rate than it did in January, according to the Institute for Supply Management (ISM). The ISM released Monday (March 2) the Manufacturing ISM Report on Business for February, and it shows companies from multiple manufacturing industries have concerns about the coronavirus, or COVID-19.

February was the second consecutive month the PMI was above 50%, which indicates the manufacturing economy is expanding. A reading below 50% indicates it’s contracting. The overall economy grew for the 130^th consecutive month, with the GDP rising at 2.1%.

The new orders index fell 2.2 percentage points to 49.8%. The production index fell 4 percentage points to 50.3% in February, from January. The backlog of orders index rose 4.6 percentage points to 50.3%. The employment index increased by 0.3 percentage points to 46.9%. The suppliers delivery index rose 4.4 percentage points to 57.3%. The inventories index fell 2.3 percentage points to 46.5%. The prices index fell 7.4 percentage points to 45.9%. The new export orders index fell 2.1 percentage points to 51.2%. The imports index declined 8.7 percentage points to 42.6%.

Executives who were surveyed for the report had positive comments with a cautious sentiment, compared to January. Those in multiple manufacturing industries noted impacts related to the coronavirus.

“Coronavirus is wreaking havoc on the electronics industry,” according to a company in the report. “Companies are delayed in starting up production, which is resulting in longer lead times, constraints and increased pricing. It’s a mad dash to dual source stateside in case China isn’t back online soon.”

The coronavirus, or COVID-19, along with the grounding of the 737 Max have hurt orders for the chemical products industry, which expects sales to be flat to slightly up for 2020. With regard to the food, beverage and tobacco products industry, demand is expected to be soft and production delays are expected for items that are sourced from China. Energy markets look to be responding to a decline in demand that might be related to the coronavirus. A company in the fabricated metal products industry noted that information from China has been slow to come as the virus remains the focal supply chain risk.

“Sales continue to be strong, with the supply base able to support as required,” according to a machinery company. “The major concern is the China virus and what that crisis could affect in getting parts. The company is putting plans in place to source out locations, especially in the U.S. for parts.”

The PMI, while expanding, was at a weak level. Demand slumped with the new orders index falling at a weak level, despite a rise in new export orders; the customers inventories index was at a “too low” level; and the backlog of orders index rose for the first time in several months but at a slow rate, the report showed.

Consumption, which is measured by the production and employment indexes, contributed to a combined 3.7-percentage point decrease to the PMI. Inputs, which include supplier deliveries, inventories and imports, rose in February as a result of a rise in supplier deliveries and offset by a decline in inventories. Imports contraction was at a strong rate, and inputs contributed positively to the PMI —  a reversal from the previous month. The supplier deliveries and inventories indexes directly factor into the PMI, while the imports index does not. Prices returned to contraction at moderately strong levels.

Global supply chains are impacting most of the manufacturing industry sectors, the report shows. Food, beverage and tobacco products was the strongest and was followed by computer and electronic products. Petroleum and coal products was the weakest. Overall, sentiment for February was marginally positive with regard to near-term growth, according to the report.

The following 14 manufacturing industries reported growth in February: wood products; furniture and related products; plastics and rubber products; printing and related support activities; paper products; textile mills; primary metals; food, beverage and tobacco products; computer and electronic products; miscellaneous manufacturing; electrical equipment, appliances and components; fabricated metal products; machinery; and chemical products. The three industries that reported contraction in February were petroleum and coal products, transportation equipment and nonmetallic mineral products.