Manufacturing Sector Surges; Activity Expanding

Economic activity in the manufacturing sector expanded in February for the third consecutive month, and the overall economy grew for the 45th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business.

Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management Manufacturing Business Survey Committee, issued the report. "The PMI registered 54.2%, an increase of 1.1% percentage points from January's reading of 53.1%, indicating expansion in manufacturing for the third consecutive month. This month's reading reflects the highest PMI since June 2011, when the index registered 55.8%. The New Orders Index registered 57.8%, an increase of 4.5% over January's reading of 53.3%, indicating growth in new orders for the second consecutive month. As was the case in January, all five of the PMI's component indexes – new orders, production, employment, supplier deliveries, and inventories – registered in positive territory in February. In addition, the Backlog of Orders, Exports, and Imports Indexes all grew in February relative to January."

Of the 18 manufacturing industries, 15 are reporting growth in February in the following order: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Paper Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Fabricated Metal Products; Furniture & Related Products; Petroleum & Coal Products; Wood Products; Printing & Related Support Activities; Transportation Equipment; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Machinery; and Primary Metals. The three industries reporting contraction in February are: Textile Mills; Computer & Electronic Products; and Chemical Products.

Manufacturing expanded in February as the PMI registered 54.2%, an increase of 1.1 percentage points when compared to January's reading of 53.1%. This month's reading reflects the highest PMI since June 2011, when the index registered 55.8%. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

A PMI in excess of 42.2%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the February PMI indicates growth for the 45th consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the third consecutive month.

Holcomb states, "The past relationship between the PMI and the overall economy indicates that the average PMI for January and February (53.7%) corresponds to a 3.6% increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI for February (54.2%) is annualized, it corresponds to a 3.7% increase in real GDP annually."

New Orders
ISM's New Orders Index registered 57.8% in February, an increase of 4.5 percentage points when compared to the January reading of 53.3%. This represents growth in new orders for the second consecutive month. A New Orders Index above 52.2%, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

The 15 industries reporting growth in new orders in February — listed in order — are: Apparel, Leather & Allied Products; Furniture & Related Products; Miscellaneous Manufacturing; Paper Products; Machinery; Nonmetallic Mineral Products; Fabricated Metal Products; Transportation Equipment; Plastics & Rubber Products; Primary Metals; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Computer & Electronic Products; Chemical Products; and Petroleum & Coal Products. The only industry reporting a decrease in new orders during February is Wood Products.

Production
ISM's Production Index registered 57.6% in February, which is an increase of 4 percentage points when compared to the 53.6% reported in January. This indicates growth in production for the sixth consecutive month. An index above 51.2%, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

The 13 industries reporting growth in production during the month of February — listed in order — are: Wood Products; Paper Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Primary Metals; Apparel, Leather & Allied Products; Printing & Related Support Activities; Fabricated Metal Products; Transportation Equipment; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; and Machinery. The four industries reporting a decrease in production in February are Textile Mills, Petroleum & Coal Products, Chemical Products, and Furniture & Related Products.

Employment
ISM's Employment Index registered 52.6% in February, which is 1.4 percentage points lower than the 54% reported in January. This month's reading indicates growth in employment for the 41st consecutive month. An Employment Index above 50.5%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, 10 reported growth in employment in February in the following order: Petroleum & Coal Products; Apparel, Leather & Allied Products; Paper Products; Printing & Related Support Activities; Furniture & Related Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Plastics & Rubber Products; Fabricated Metal Products; and Primary Metals. The five industries reporting a decrease in employment in February are Chemical Products, Transportation Equipment, Computer & Electronic Products, Machinery, and Wood Products.

Supplier Deliveries
The delivery performance of suppliers to manufacturing organizations was slower in February as the Supplier Deliveries Index registered 51.4%, which is 2.2 percentage points lower than the 53.6% reported in January. This indicates the fourth consecutive month of slower supplier deliveries. A reading below 50% indicates faster deliveries, while a reading above 50% indicates slower deliveries.

The five industries reporting slower supplier deliveries in February are: Plastics & Rubber Products; Petroleum & Coal Products; Primary Metals; Fabricated Metal Products; and Electrical Equipment, Appliances, & Components. The four industries reporting faster supplier deliveries in February are: Machinery; Computer & Electronic Products; Chemical Products; and Miscellaneous Manufacturing. Nine industries reported no change in supplier deliveries in February compared to January.

Inventories*
The Inventories Index registered 51.5% in February, which is 0.5 percentage point higher than the 51% reported in January. This month's reading indicates that respondents are reporting inventories are growing in February for the second consecutive month. An Inventories Index greater than 42.7%, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The nine industries reporting higher inventories in February — listed in order — are: Apparel, Leather & Allied Products; Wood Products; Plastics & Rubber Products; Petroleum & Coal Products; Transportation Equipment; Miscellaneous Manufacturing; Chemical Products; Fabricated Metal Products; and Food, Beverage & Tobacco Products. The six industries reporting decreases in inventories in February — listed in order — are: Textile Mills; Primary Metals; Furniture & Related Products; Paper Products; Computer & Electronic Products; and Nonmetallic Mineral Products.

Customers' Inventories*
The ISM Customers' Inventories Index registered 46.5% in February, which is 2 percentage points lower than in January when the index registered 48.5%. This month's reading indicates that customers' inventories are considered too low, and lower than reported in January. Customers' inventories have registered at or below 50% for 47 consecutive months. A reading below 50% indicates customers' inventories are considered too low.

The three manufacturing industries reporting customers' inventories as being too high during the month of February are: Primary Metals; Chemical Products; and Food, Beverage & Tobacco Products. The 11 industries reporting customers' inventories as too low during February — listed in order — are: Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Paper Products; Nonmetallic Mineral Products; Printing & Related Support Activities; Transportation Equipment; Machinery; Computer & Electronic Products; Fabricated Metal Products; Miscellaneous Manufacturing; and Apparel, Leather & Allied Products.

Prices*
The ISM Prices Index registered 61.5% in February, which is an increase of 5 percentage points compared to the January reading of 56.5%. In February, 31 percent of respondents reported paying higher prices, 8% reported paying lower prices, and 61% of supply executives reported paying the same prices as in January. A Prices Index above 49.7%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

Of the 18 manufacturing industries, 14 reported paying increased prices during the month of February in the following order: Textile Mills; Wood Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Chemical Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Transportation Equipment; and Computer & Electronic Products. The only industry reporting paying lower prices during February is Apparel, Leather & Allied Products.

Backlog of Orders*
ISM's Backlog of Orders Index registered 55% in February, which is 7.5 percentage points higher than the 47.5% reported in January. This is the first month of growth in order backlogs since March 2012, when the index registered 52.5%. Of the 83% of respondents who reported their backlog of orders, 26% reported greater backlogs, 16% reported smaller backlogs, and 58% reported no change from January.

The 14 industries reporting increased order backlogs in February — listed in order — are: Furniture & Related Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Primary Metals; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Paper Products; Petroleum & Coal Products; Plastics & Rubber Products; Fabricated Metal Products; Miscellaneous Manufacturing; Transportation Equipment; Chemical Products; and Machinery. The two industries reporting decreases in order backlogs during February are: Computer & Electronic Products; and Wood Products.

New Export Orders*
ISM's New Export Orders Index registered 53.5% in February, which is 3 percentage points higher than the 50.5% reported in January. This month's reading represents only the third month of growth in the index since May 2012, when the index registered 53.5%.

The seven industries reporting growth in new export orders in February — listed in order — are: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Furniture & Related Products; Fabricated Metal Products; Transportation Equipment; Computer & Electronic Products; and Machinery. The three industries reporting a decrease in new export orders during February are: Wood Products; Primary Metals; and Chemical Products. Eight industries reported no change in new export orders for the month of February when compared to January.

Imports*
ISM's Imports Index registered 54% in February, which is 4 percentage points higher than the 50% reported in January. This month's reading indicates that import levels are growing for the second time in the past three months.

The nine industries reporting growth in imports during the month of February — listed in order — are: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Fabricated Metal Products; Transportation Equipment; Computer & Electronic Products; Food, Beverage & Tobacco Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; and Machinery. The three industries reporting a decrease in imports during February are: Plastics & Rubber Products; Primary Metals; and Chemical Products.

Buying Policy
Average commitment lead-time for Capital Expenditures decreased 8 days to 112 days. Average lead-time for Production Materials decreased 3 days to 56 days. Average lead-time for Maintenance, Repair, and Operating (MRO) Supplies decreased 3 days to 25 days. About this Report

The data presented herein is obtained from a survey of manufacturing supply managers based on information they have collected within their respective organizations. ISM makes no representation, other than that stated within this release, regarding the individual company data collection procedures. Use of the data is in the public domain and should be compared to all other economic data sources when used in decision-making.

Data and Method of Presentation
The Manufacturing ISM Report On Business is based on data compiled from purchasing and supply executives nationwide. Membership of the Manufacturing Business Survey Committee is diversified by NAICS, based on each industry's contribution to gross domestic product (GDP). Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Food, Beverage & Tobacco Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Customers' Inventories, Employment, and Prices), this report shows the percentage reporting each response, the net difference between the number of responses in the positive economic direction (higher, better and slower for Supplier Deliveries) and the negative economic direction (lower, worse and faster for Supplier Deliveries), and the diffusion index. Responses are raw data and are never changed. The diffusion index includes the percent of positive responses plus one-half of those responding the same (considered positive).

The resulting single index number for those meeting the criteria for seasonal adjustments (PMI, New Orders, Production, Employment, and Supplier Deliveries) is then seasonally adjusted to allow for the effects of repetitive intra-year variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to non-moveable holidays. All seasonal adjustment factors are supplied by the U.S. Department of Commerce and are subject annually to relatively minor changes when conditions warrant them. The PMI is a composite index based on the diffusion indexes of five of the indexes with equal weights: New Orders (seasonally adjusted), Production (seasonally adjusted), Employment (seasonally adjusted), Supplier Deliveries (seasonally adjusted), and Inventories.

Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. A PMI reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally declining. A PMI in excess of 42.2%, over a period of time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 42.2%, it is generally declining. The distance from 50% or 42.2% is indicative of the strength of the expansion or decline. With some of the indicators within this report, ISM has indicated the departure point between expansion and decline of comparable government series, as determined by regression analysis.

The Manufacturing ISM Report On Business surveys are sent out to Manufacturing Business Survey Committee respondents the first part of each month. Respondents are asked to ONLY report on information for the current month. ISM receives survey responses throughout most of any given month, with the majority of respondents generally waiting until late in the month to submit responses in order to give the most accurate picture of current business activity. ISM then compiles the reports for release on the first business day of the following month.

The industries reporting growth, as indicated in the Manufacturing ISM Report On Business monthly reports, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases, those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease.

Responses to Buying Policy reflect the percent reporting the current month's lead time, the approximate weighted number of days ahead for which commitments are made for Production Materials; Capital Expenditures; and Maintenance, Repair and Operating (MRO) Supplies, expressed as hand-to-mouth (five days), 30 days, 60 days, 90 days, six months (180 days), a year, or more (360 days), and the weighted average number of days. These responses are raw data, never revised, and not seasonally adjusted since there is no significant seasonal pattern.

The Manufacturing ISM Report On Business is published monthly by the Institute for Supply Management, the first supply institute in the world. Founded in 1915, ISM exists to lead and serve the supply management profession and is a highly influential and respected association in the global marketplace. ISM's mission is to enhance the value and performance of procurement and supply chain management practitioners and their organizations worldwide. This report has been issued by the association since 1931, except for a four-year interruption during World War II.

The view the accompanying charts for this month’s Manufacturing ISM Report On Business visit www.ism.ws.

* The Inventories, Customers' Inventories, Prices, Backlog of Orders, New Export Orders, and Imports Indexes do not meet the accepted criteria for seasonal adjustments.