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Manufacturing: Positive but Slowing

Written by Gary North on March 2, 2012

The Institute for Supply Management issues a monthly report on economic conditions in business. It is based on a comprehensive survey. Investors pay attention to this report.

The report for February was positive for manufacturing: above 50. But it was lower than for January. “The PMI registered 52.4 percent, a decrease of 1.7 percentage points from January’s reading of 54.1 percent, indicating expansion in the manufacturing sector for the 31st consecutive month.”

The New Orders Index registered 54.9 percent, a decrease of 2.7 percentage points from January’s reading of 57.6 percent, reflecting the 34th consecutive month of growth in new orders.

What struck me was the move up of raw materials prices. “Prices of raw materials increased for the second consecutive month, with the Prices Index registering 61.5 percent.” This indicates that manufacturers expect rising prices for final output: consumer goods. They are paying higher prices to secure raw materials. They are bidding against each other. This does not point to deflation.

As was the case in January, new orders, production and employment all grew in February — although at somewhat slower rates than in January. Comments from the panel continue to reflect a generally positive outlook for the next few months.”

Of the 18 manufacturing industries, 11 are reporting growth in February.

So, the recovery is continuing, but manufacturing is beginning to slow. Services are the major component of the U.S. economy, not manufacturing. But manufacturing does at least indicate the direction of the economy. It reveals what business managers are thinking lies ahead.

The recovery is slowing.

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