Manufacturing sector contracts for 16th straight month

Economic activity in the U.S. manufacturing sector declined in February for the 16^th consecutive month, according to the Institute for Supply Management (ISM). Manufacturing activity slowed in February from January.

The ISM released Friday (March 1) the February Manufacturing ISM Report on Business that shows the manufacturing purchasing managers’ index (PMI) declined by 1.3 percentage points to 47.8% in February from January. A PMI below 50% indicates the manufacturing sector is contracting.

According to the February report, new orders and backlogs declined. Production and employment fell. Supplier deliveries were slower. Raw materials inventories decreased. Customers’ inventories were too low. Prices rose. Imports and exports increased.

“The U.S. manufacturing sector continued to contract and at a faster rate compared to January, with demand slowing, output easing and inputs remaining accommodative,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. “Panelists’ companies maintained their production levels month over month, but that growth could not outpace seasonal factors. Head-count reductions continued in February, with notable layoff activity noted.”

The following eight manufacturing industries reported growth in February:

• Apparel, leather and allied products
• Nonmetallic mineral products
• Primary metals
• Plastics and rubber products
• Fabricated metal products
• Chemical products
• Miscellaneous Manufacturing
• Transportation Equipment.

“Demand is at the early stages of recovery, and production execution is relatively stable compared to January, as panelists’ companies begin to prepare for expansion,” Fiore said. “Suppliers continue to have capacity but are showing signs of struggling, due in part to their raw material supply chains.”

Most industry respondents expect demand to rise this year and reported that orders are stable or rising.

In the chemical products industry, a respondent said sales are rising, and most of the deliveries are set for the second quarter of 2024. A respondent in the transportation equipment industry said the first quarter will be slower because of some customer order changes, but the remainder of 2024 is expected to be strong.

A respondent in the food, beverage and tobacco products industry noted a typical seasonal drop in volumes in the first quarter from the fourth quarter. “Additional distribution has allowed us to maintain consistent production shifts.” In the computer and electronic products industry, a respondent reported continued customer softness in China, Europe and Japan.

A machinery industry respondent said, “Demand has finally picked up, with customer orders more closely resembling typical January and February levels. January was up 22% compared to December; February [was] up 26% compared to January.” In the fabricated metal products industry, a respondent said customer orders were flat from last month as projected. Business is expected to rise 2% to 4% over the next two months.

In the miscellaneous manufacturing industry, a respondent noted the “business outlook overall is stable. Working through customer backlog with some raw material lead times improving.” A respondent in the nonmetallic mineral products industry said the January weather idled multiple operations, and shipments were affected. In the electrical equipment, appliances and components, a respondent said sales are rising, and this is “putting pressure on the plant and assembly to meet new customer demand.”

A respondent in the primary metals industry said, “The month seems to be getting stronger with each passing day and week. Lots of market volatility — pricing [is] flat to downward. It will be interesting to see how the last days of the month play out, as indications seem to be all over the place.”