U.S. manufacturing activity contracted for a fourth month in a row in February, according to the Institute for Supply Management, though activity edged up slightly over January and demand improved.
The ISM reports its index of manufacturing activity edged up 0.3% to a still contractionary reading of reading of 47.7%. Any reading below 50 indicates contraction.
This represents the sector’s fourth straight month of contraction following a 28-month expansion seen in the pandemic-recovery period.
The ISM reports demand, while still in contraction, improved in February, with the New Orders index rising 4.5% to a reading of 47%. Production remains stuck in contraction, down 0.7% to 47.3%.
Said Timothy Fiore, Chairman of the ISM. “The February composite index reading reflects companies continuing to slow outputs to better match demand for the first half of 2023 and prepare for growth in the second half of the year.” Fiore further noted sluggishness in the sector was showing signs of improvement with “The share of sector industries with a composite PMI® calculation at or below 45 percent — a good barometer of overall manufacturing sluggishness — was 10 percent, an improvement compared to 26 percent in January.”
Meanwhile, prices, which had been on the decline, rose 6.8% to an expansionary reading of 51.3%. Employment, which had rebounded into expansion in January, fell back into contraction, posting a reading of 49.1%.
Fiore noted however that companies indicated they were not looking to reduce headcount as respondents are generally positive about the second half of 2023.
In February, four of eighteen industries reported growth: apparel, leather & allied products; transportation equipment; petroleum & coal products; and electrical equipment. All other sectors contracted, sharpest in printing & related support activities; paper products; wood products; textile mills; and furniture.
What Manufacturers Are Saying About Business Conditions
Comments from manufacturers reflect a general optimism for the latter half of 223 as supply and demand issues equalize, while ongoing issues with supply chain disruptions and prices continue.
One executive in the food, beverage, and tobacco sector reported, “Expect the first half of 2023 in the U.S. to be slower than the second half. Expect slower orders throughout 2023 for Europe
Another in the electrical equipment, appliances and components sector stated, “New orders are steady; production has been running consistently for several months. Many items remain in short supply (particularly anything electronics) and require daily monitoring to ensure supply.”
One panelist in the transportation equipment sector noted, ““Sales remain solid, and most assembly plants are running at capacity. There is concern for the global supply chain now that we are restricting sales of some semiconductors to China.”
While another in the fabricated metals manufacturing sector reported, “New orders are still strong; however, we continue to experience price increases (although at a slower rate than a year ago), which we have not accounted for in this year’s budget. Restoring lost margin due to cost increases is a top priority.”
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