February 2014 ISM Reports

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According to the Institute for Supply Management (ISM), expansion of economic activity in the U.S. manufacturing sector inched up in February. The PMI registered 53.2 percent, an increase of 1.9 percentage points from January's 51.3 percent (50 percent is the breakpoint between contraction and expansion). “As in January, several comments from the [respondent] panel mention adverse weather conditions as a factor impacting their businesses in February,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee. “Other comments reflect optimism in terms of demand and growth in the near term.”

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Although overall manufacturing production shrank in February, inventories accumulated again. Growth in new and export orders, and order backlogs provides positive expectations for domestic manufacturers. Wood Products expanded again in February, thanks to additional employment and new and backlogged orders. Paper Products also grew, with nearly universal support among the sub-indices.

Whereas manufacturing growth nearly stalled in January, it was non-manufacturing’s turn in February. The NMI registered 51.6 percent, 2.4 percentage points lower than January’s 54.0 percent; that was the slowest reading since February 2010. Except for supplier deliveries and new and backlogged orders, service sub-indices either rose more slowly or contracted more quickly than in January. “The majority of respondents’ comments indicate a slowing in the rate of growth month over month of business activity,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. “Some of the respondents attribute this to weather conditions. Overall respondents’ comments reflect cautiousness regarding business conditions and the economy.”

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Among the individual service industries we track, only Ag & Forestry expanded. Construction contracted despite increases in employment and order backlogs. Real Estate also contracted as dips in new orders and employment more than offset a rise in order backlogs.

Commodities up in price included copier paper, diesel and gasoline, natural gas, pallets, lumber and wood. No relevant commodities were either down in price or in short supply.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.