ISM reports strong February manufacturing output

Manufacturingoutput in February turned in another solid performance, according to the most recent edition of the Manufacturing Report on Business, which was issued today by theInstitute for Supply Management (ISM).

The report’s key metrics, the PMI, came in at 58.6 (a reading of 50 or higher indicates growth), posting a 1.0% gain over January, marking the 21st consecutive month of growth, at a faster rate, as well as the 21st consecutive month of overall economic growth.

February’s PMI reading is 1.7 below the 60.3 average over the last 12 months, with March 2021’s 63.7 marking the high for that period and January 2022’s 57.6 marking the low for that period.

ISM reported that 16 manufacturing industries sectors saw gains in February, including: Apparel, Leather & Allied Products; Textile Mills; Paper Products; Transportation Equipment; Machinery; Miscellaneous Manufacturing; Primary Metals; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Furniture & Related Products; Plastics & Rubber Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Chemical Products; and Petroleum & Coal Products. The only industry seeing a sequential decline was Wood Products.

The manufacturing report’s key metrics were mixed in February 2022.

新订单,通常referred to as the engine that drives manufacturing, saw a 3.8% increase, to 61.7, growing, at a faster rate, for the 21st consecutive month, with each of the largest manufacturing sectors— Transportation Equipment; Computer & Electronic Products; Petroleum & Coal Products; Chemical Products; Machinery; and Food, Beverage & Tobacco Products—all seeing gains. And 13 of the 18 manufacturing sectors saw gains. February was the 17th month over the last 20, in which new orders topped the 60 reading.

Production—at 58.5—eked out a 0.7% gain, growing, at a faster rate, for the 21st consecutive month, with five of the six largest manufacturing sectors and ten of the 16 sectors growing. The report’s panelists cited Omicron-related labor and material shortages as drivers for difficulties in executing manufacturing plans in January and February.

Employment—at 52.9—slipped 1.6%, while still growing, at a slower rate, for the sixth consecutive month, with three of the six largest manufacturing sectors growing, as well as 10 other sectors growing. The report noted that panelists’ companies are still struggling to meet labor management plans, coupled with signs of slowing progress compared to previous months.

Other notable metrics included:

• Supplier deliveries—at 66.1 (a reading above 50 indicates contraction)—slowed, at a faster rate, for the 72nd consecutive month, with the reading continuing reflect suppliers’ difficulties in meeting demand from panelists’ companies;
• Backlog of orders—at 65.0—increased 8.6%, growing, at a faster rate, for the 20th consecutive month, marking the largest positive change since a 10.8% gain in January 2011;
• Inventories—at 53.6—increased 0.4%, growing, at a faster rate, for the seventh consecutive month, and customer inventories—at 31.8—fell 1.1, trending too low, at a faster rate, for the 65th consecutive month; and
• Prices—at 75.6—were off 0.5%, increasing, at a slower rate, for the 21st consecutive month

Comments from ISM member panelists in the report showed some positive signs, while various global supply chain issues and challenges remain largely intact.

“Demand for transportation equipment remains strong,” said a Transportation Equipment respondent. “Supply of transportation services continues to be a major issue for the supply chain.”

And a Textile Mills respondent said his company is are expecting a year of strong demand, higher prices and continued supply chain challenges.

Tim Fiore, Chair of the ISM’s Manufacturing Business Survey Committee, said in an interview that manufacturing demand was really good in February, following concerns in January relating to a weakening on the new orders side, coupled with a fairly substantial decline in January’s backlog of orders, with things returning to more normal levels in February.

“I was concerned we were seeing a trend of declining demand, but I did think it would come back,” he said. “That was reflected in the new orders level, a strong new export orders reading (up 3.4% to 57.1), customer inventories easing back towards 30, and most importantly, the strongest backlog of orders number since 2011. Demand was super solid.”

On the inputs side, Fiore said he thought the supplier deliveries number had the potential to go higher but was pleased it did not, indicating it went over what he called a small speed bump, continuing on its way to a 62 reading, or, more ideally, closer to 58.

“February was a recovery month, and in March we will see gains,” he said. “The good news here, from an industry standpoint, is that transportation was our number one ‘big six’ industry sector for the first time since 2018. That was followed by machinery, which is capital-intensive, with the lead times on capital and materials are the longest we have seen in a long time.”

Looking at the first quarter on balance, now that it is two-thirds complete, Fiore said that manufacturing is in a better-than-expected spot, given that there was an expectation that things would be pushed back by about a quarter, due to the Omicron variant, but were instead set back by about two months.

“In March, it is kind of clear sailing here,” he said. “Back in December, when Omicron started to surge, we thought it would carry on through March, and it ended up carrying through the end of February. Now we have this Russia-Ukraine situation. It is still way too early to figure all that out, and, by March, we will have more light on that, whether it is sustaining or they come to a truce. I don’t see it being a long-term conflict, to be honest.”