Index Shows Improvement in Manufacturing Sector During February

YOUNGSTOWN, Ohio – A major index that measures manufacturing growth showed signs of improvement during February, indicating near-term expansion in the sector.

PNC Senior Economist Kurt Rankin said Wednesday that the ISM Manufacturing PMI report showed a slight increase to 47.7 in February, up from 47.4 in January.

The Manufacturing report had fallen for five consecutive months through January, which put the topline result at its lowest level since 2009 – excluding the early days of the U.S. economy’s pandemic-induced economic shutdowns, he said.

The index indicates the net percentage of manufacturers who are  expanding or contracting activity across various categories.  Although a reading below 50 reveals net contraction across the manufacturing sector, overall economic activity in the U.S. suggests that gains in key forward-looking categories may well be indicative of a broader return to manufacturing industry expansion.

Also, the new orders component index of the manufacturing report increased to 47.0 during February, the strongest reading since October 2022, Rankin said.

The turnaround coincides with ongoing consumer demand strength and a bounce in U.S. manufacturing-specific industrial production in January after declines in that metric to close out 2022.

The production component index continued to decline in February 2023 but should follow the turnaround in new orders if renewed demand strength is confirmed in the coming months.

Manufacturing employment continued to hover near breakeven conditions in February 2023, coming in at 49.1 for the month.

The employment component index has posted readings between 48 and 51 since August 2022, indicating continued labor market tightness.

The potential for renewed manufacturing employment gains in the coming months, given the bounce in new orders in the February Manufacturing report, poses concerns for manufacturers in that labor is already scarce and wages can only be pushed up further in demand for workers picks up. The end result is the potential for another bout of upward pressure on inflation through mid-2023.

Manufacturers’ costs, as measured by the ISM Manufacturers’ PMI report commodity prices component index, rose strongly in February 2023, with a reading of 51.3 for the month.

The fourth quarter of 2022 revealed manufacturing cost pressures had stabilized, with the prices component falling as low as 39.4 in December.

There is growing concern that oil prices will regain their upward momentum as this year progresses given anticipation of stronger demand from China’s economy. Oil price gains will increase manufacturers’ costs as well as the cost of transporting goods to market, ultimately prolonging inflation’s impact in the U.S. and across the global economy.

The ISM Manufacturing report’s prices component will act as a key forward-looking indicator to this effect in the months to come.

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