U.S. Manufacturing Growth Fizzles To 13-Month Low, At Least

The pace of U.S. manufacturing growth fell in February to its slowest in 13 months, according to a closely-watched industry report released Monday.

The Institute for Supply Management (ISM) said its index of national factory activity fell to 52.9 from 53.5 the month prior. The reading missed economists’ expectations of 53.1 outlined in a Reuters poll, and was the lowest reading since January 2014.

“The February PMI® registered 52.9 percent, a decrease of 0.6 percentage point from January’s reading of 53.5 percent. The New Orders Index registered 52.5 percent, a decrease of 0.4 percentage point from the reading of 52.9 percent in January. The Production Index registered 53.7 percent, 2.8 percentage points below the January reading of 56.5 percent,” said Bradley J. Holcomb, the chair of the Institute for Supply Management. “The Employment Index registered 51.4 percent, 2.7 percentage points below the January reading of 54.1 percent. Inventories of raw materials registered 52.5 percent, an increase of 1.5 percentage points above the January reading of 51 percent. The Prices Index registered 35 percent, the same percentage as in January, indicating lower raw materials prices for the fourth consecutive month.”

A reading above 50 indicates expansion in the manufacturing sector, but most components of the index declined, the latest piece of data suggesting a slowing in growth in the factory sector. Though the main index’s 50-plus reading marks the 28th consecutive month of growth in manufacturing, there is little doubt that the index confirms previous regional Fed indexes showing slowdowns and contractions.

“Comments from the panel express a growing level of concern over the West Coast dock slowdown, negatively impacting exports and imports and requiring workarounds and added costs,” Mr. Holcomb added. However, the port strike has been ongoing for more time than many economists can justify as negatively impacting this report.

The new orders index cooled to 52.5 from 52.9 in January, a piece of data unrelated to port strikes. The prices paid index was unchanged at 35, and the employment index fell to 51.4 from 54.1.

“The past relationship between the PMI and the overall economy indicates that the average PMI for January and February (53.2 percent) corresponds to a 3.2 percent increase in real gross domestic product (GDP) on an annualized basis,” Holcomb explained. “In addition, if the PMI for February (52.9 percent) is annualized, it corresponds to a 3.1 percent increase in real GDP annually.”