The Institute for Supply
Management‘s (ISM) monthly sentiment survey of U.S. manufacturers reflected a faster rate
of contraction in the sector during February. The
Concurrent activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- decelerated (-0.8PP, to 52.6%). The employment (-2.5PP, to 48.0%), slow deliveries (-3.5PP, to 48.9%), and inventories (-2.0PP, to 47.1%) subindexes fell below breakeven; only business activity (+1.4PP, to 57.2%) and new orders (+2.2PP, to 55.0%) accelerated.
Respondent
comments included the following –
Construction. “Business remains strong across the U.S. industrial
construction sector. Construction materials levels have returned to
pre-coronavirus pandemic levels, and the outlook for 2024 is strong.”
Changes
in S&P Global‘s
headline index value for manufacturing reflected an “overall rate of growth [that]
was the fastest since July 2022.” Also, the services sector “signaled a further
solid performance during February.” Details from S&P Global’s surveys
follow --
Manufacturing. Manufacturing conditions improve at fastest pace
since July 2022.
Key findings:
- Renewed rise in output as supply conditions improve
- New order growth sharpest since May 2022
- Selling price inflation quickens despite slower rise in input costs
Services. US service sector reports sustained expansion in
February.
Key findings:
- Output grows at second fastest-rate in past seven months
- Cost pressures ease but selling prices rise at faster pace
- Employment growth dips amid cautious outlook
Commentary
by Chris Williamson, S&P Global’s chief business economist --
Manufacturing. “Manufacturing is showing encouraging signs of
pulling out of the malaise that has dogged the goods-producing sector over much
of the past two years. After a long spell of reducing inventories in order to
cut costs, factories are now increasingly rebuilding warehouse stock levels,
driving up demand for inputs and pushing production higher at a pace not seen
since early 2022. There are also signs of stronger demand for consumer goods,
linked in part to signs of the cost-of-living crisis easing.
“Firms
are consequently investing in more staff and more equipment, laying the
foundations of further production gains in the coming months to hopefully drive
a stronger and more sustainable recovery of the manufacturing economy.
“Problems
with shipping disruptions and supply chains earlier in the year have eased,
taking some pressure off input prices, though factory gate prices are
recovering amid stronger customer demand, which will be an area to watch
closely in the coming months as policymakers assess the appropriateness and
timing of any interest rate cuts.”
Services. “A further robust expansion of service sector
activity in February follows news of faster manufacturing output growth. The
goods and services producing sectors are collectively reporting the sharpest
growth since last June, hinting at a further quarter of solid GDP growth.
“The
acceleration occurred despite a cooling of growth in financial services, linked
to the recent pull-back in rate cut expectations. Demand for consumer goods and
services has, however, picked up further in February amid the easing of the cost-of-living
crisis and healthy labor market conditions, meaning consumers are once again at
the forefront of the economic expansion.
“A
concern is that alongside this faster growth, the survey has seen price
pressures revive. Although average prices are still rising at one of the
slowest rates seen over the past four years, the rate of inflation picked up
for goods and services alike in February to hint at some broad-based firming of
price pressures that could worry policymakers about cutting interest rates too
early.”
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.
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