Manufacturing pulling out of the ‘malaise’ despite some performance dips: PMI | Manufacturing Dive

Nov 10, 2024

While some metrics like employment and production were down based on the ISM’s monthly report, economists remain optimistic about the year ahead.

The worst may be behind the manufacturing industry.

After months of dismal economic performance, the S&P Global U.S. Manufacturing Purchasing Managers' Index posted its highest performance improvement since July 2022, with a reading of 52.2 in February, up from 50.7 the month before. A reading above 50.0 indicates the industry is in economic growth.

Both foreign and domestic demand grew last month, driving sales up at the quickest pace since May 2022. Job creation was also up on the backs of stronger demand, according to S&P Global.

"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," Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.

The positivity applied to suppliers as well, who benefited from greater raw material availability and lead times that shortened to the greatest extent since last July.

"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," Williamson said.

While the Institute for Supply Management's PMI was not as positive at 47.8%, Timothy Fiore, chair of ISM's Manufacturing Business Survey Committee, highlighted on a media call Friday that he remains optimistic about the industry’s upward trajectory.

"I still feel pretty good about breaking 50 in March," Fiore said. "I'm maybe not as confident as I was, maybe it might be April, but it's gonna happen pretty soon because the fundamentals are there."

Eight manufacturing industries reported growth last month: apparel, leather and allied products, nonmetallic mineral products, primary metals, plastics and rubber products, fabricated metal products, chemical products, miscellaneous manufacturing and transportation equipment. None of the top six sectors, based on contribution to manufacturing GDP, had a PMI at or below 45%, compared to two in January.

A dip in demand, which dropped from 52.5% in January to 49.2% in February, was a leading factor in the PMI drag.

Employment was down slightly to 45.9%, with layoffs as the primary tool half of survey respondents said they used to manage headcount. Production also dropped in ISM's index, to 48.4%. Fiore noted that the dips were not a big surprise, as seasonal headwinds in the industry remain strong.

Seasonality was a key factor in Fiore's analysis of the industry's economic state. ISM seasonally adjusts four of its metrics — new orders, employment, production and inventories — based on a set of 12 factors that take into account variations like weather conditions, "institutional arrangements" and non-moveable holidays throughout the year.

ISM's non-seasonally adjusted PMI in February was just over 49%, Fiore said, noting the effect other factors in the environment can have on the industry's economics.

"We're still kind of sitting in uncertain times here, calculating seasonal factors over the last three years where there really wasn't any seasonality, it was all go, go, go and then it was all decline, decline, decline," Fiore said. "The first half is going to be a bit bumpy, and this is one of those bumps, and I would think that in March we'll probably do better.”