National Manufacturing ISM in February fell back into contractionary territory for the second time in three months, falling to 48.3 from 50.7 in January. This brings the index to its lowest reading since April, 2003. Consensus had looked for a larger drop to 48.
Fifty is the dividing line between expansion and contraction, and the trend is starting to indicate a definite deceleration in economic growth, and possibly a recession. As long as the manufacturing PMI remains over 41.1% consistently, it indicates expansion in the overall economy, according to the producer's of the index. They say that the January/February average of 49.5% corresponds to a 2.6% growth in real GDP. Of course, manufacturing activity now represents only 12% of the US economy, so other factors can swamp this component in overall GDP. But, export demand for aircraft and other manufactured goods remains an important demand contributor to the US economy.
The only category to show an increase last month was the backlog of orders which rose to 45 from 44. The only categories with readings above 50 were Prices Paid at 75.5 (indicating companies are continuing to pay higher prices for raw materials), Production at 50.7, Supplier deliveries at 50.1, and New Export Orders at 56.
New orders fell to 49.1 from 49.5, but remain above the December low of 46.9. Employment eased down to 46 from 47.1. So though they declined, the drops were small.
Seven industries reported growth in February - Apparel, leather, wood products, plastic and rubber products, misc. manufacturing, primary metals, food, beverage and tobacco, and transportation equipment. It appears that transportation demand is recovering while furniture demand remains sluggish. The national index was stronger than the regional indexes had indicated, but business conditions in general continue to deteriorate, based on the trend in this index.
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