Two independent purchasing managers indexes (PMI) released today (March 2), revealed conflicting pictures on the direction of the US manufacturing sector in February. While the Institute for Supply Management's closely watched PMI indicated that sector growth weakened again last month, another PMI released separately by Markit Economics showed the most marked improvement in business conditions since October.
ISM's PMI decreased 0.6 points to 52.9% in February, signaling that US manufacturing's grip on growth slipped further from a 12-month high of 58.1% last August. Though it stayed on the positive side of 50, indicating that the sector grew once again, the PMI's momentum eroded for the fourth straight month and fell short of economists' forecasts of 53%.
Meanwhile, the Markit US manufacturing PMI rose to 55.1 in February from 53.9 the previous month, with the analyst attributing the growth acceleration to sharper increases in US factory output and new orders.
It should be noted that while the respective ISM and Markit PMIs are both composite indexes based on the diffusion indexes of new orders, production output, employment, supplier delivery times and inventories, their monthly survey sample sizes and demographics differ. Markit's total US manufacturing PMI survey panel comprises over 600 small to large companies, and it gives different weights to its individual indexes that make up the composite figure.
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ISM's monthly survey covers a broad mix of 350 medium-sized to large companies. Survey respondents are directors or upper managers of procurement at US manufacturing companies as well as the domestic operations of global companies. ISM also lends equal weight distribution among the diffusion indexes of its PMI.
According to the trade group, new orders last month among survey panelists slid 0.4 points to 52.5% while factory activity fell from 56.5% in January to 53.7%. Partly as a result, backlogs of work went from contraction to growth in February, jumping from 46% to 51.5%.
Manufacturing employment also saw a sharp tumble from 54.1% to 51.4%. Supplier deliveries also slowed down, and inventories of raw materials at manufacturing organizations built up for the second straight month. Manufacturers did get relief from continued low prices, the index for which went unchanged from January.
There was a particular emphasis by ISM on the impact of the West Coast shipping port conflict on both exports and imports. While the 29 shipping terminals from southern California to Washington finally reached a tentative labor contract with the dockworkers union on March 20, after nine months of negotiations, analysts say it will take months to alleviate the congestion at the docks and move goods that have stalled as a result of a work slowdown.
The pace of contraction in manufacturing exports quickened in February, according to ISM, with an exports index of 48.5%, a full point lower than the previous month. Imports softened, from 55.5% to 54%. It remains to be seen how the delays will affect the nation's supply chains, manufacturing production and commerce this year.
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Markit's February PMI painted a rosier situation for US manufacturing, jumping 1.2 points. It was the biggest month-to-month increase in four months, with manufacturing production growth quickening as a result of new business. Markit reported that higher new orders - which included a modest rise in export orders - was one factor that led to an accumulation of backlogs in February, while supplier delivery delays also contributed to rising outstanding business.
Markit said delivery times of supplies lengthened to their greatest extent in more than a year, though it attributed them to adverse weather conditions in some parts of the country rather than the West Coast port slowdown. The analyst also said sector employment grew, due to new work and replenishing of employee rosters, though job creation was at its slowest pace in seven months.
"A flurry of activity towards the month end helped raise production to a greater extent," said Chris Williamson, Markit's chief economist. "While growth of manufacturing output remained below the peaks seen last year, the survey is broadly consistent with production rising at an annualized rate approaching 4%."
Will Ng is a perfectionist who has been in business journalism for more than 15 years, many of which have been devoted to covering manufacturing, technology, and industry. A writer first, he loves to tell a good story and enjoys reporting on market trends and news.