Economic activity in the manufacturing sector contracted in February for the 16th consecutive month following one month of "unchanged" status and 28 months of growth prior to that, according to the latest Manufacturing ISM Report On Business, released on March 1.
The Manufacturing PMI registered 47.8% in February, down 1.3 percentage points from the 49.1% recorded in January.
The overall economy continued in expansion for the 46th month after one month of contraction in April 2020.
Michael Pearce, deputy chief US economist at Oxford Economics, offers the following analysis:
We suspect the surprise decline in the ISM manufacturing index in February will prove to be a blip in an otherwise gradual recovery for the sector over the course of 2024. Meanwhile, there are few signs that shipping disruptions are causing significant shortages or pushing up prices.
Declines in new orders, production, and employment drove the disappointment in the headline index, but the numbers were at odds with the more positive commentary released alongside the report, which suggested firms in many sectors were becoming more optimistic about the outlook. In that sense, February's decline looks like a temporary weak patch in an otherwise upward trend.
Supplier delivery times lengthened slightly in February, though manufacturing firms continued to pare inventories, while the backlog of orders index remains low. The prices index fell modestly in February, indicating that any rise in delivery delays because of shipping disruptions is yet to meaningfully add to inflation pressures, in line with our view.
The disappointing ISM reading does not justify changes to our near-term forecasts. The hard economic data suggest Q1 GDP growth is still tracking at or above 2% annualized and the economy has expanded strongly over the past year despite weakness in manufacturing.
