Manufacturing Sector Expands in February as New Orders, Production and Employment Metrics Increase



Economic activity in the manufacturing sector grew in February, with the overall economy notching a ninth consecutive month of growth, according to the latest Manufacturing ISM Report on Business from the Institute for Supply Management.

“The February Manufacturing PMI registered 60.8%, an increase of 2.1 percentage points from the January reading of 58.7%. This figure indicates expansion in the overall economy for the ninth month in a row after contraction in March, April and May,” Timothy R. Fiore, CPSM, CPM, chair of the Institute for Supply Management manufacturing business survey committee, said. “The New Orders Index registered 64.8%, up 3.7 percentage points from the January reading of 61.1%. The Production Index registered 63.2%, an increase of 2.5 percentage points compared to the January reading of 60.7%. The Backlog of Orders Index registered 64%, 4.3 percentage points above the January reading of 59.7%. The Employment Index registered 54.4%, 1.8 percentage points higher from the January reading of 52.6%. The Supplier Deliveries Index registered 72%, up 3.8 percentage points from the January figure of 68.2%. The Inventories Index registered 49.7%, 1.1 percentage points lower than the January reading of 50.8%. The Prices Index registered 86%, up 3.9 percentage points compared to the January reading of 82.1%. The New Export Orders Index registered 57.2%, an increase of 2.3 percentage points compared to the January reading of 54.9%. The Imports Index registered 56.1%, a 0.7-percentage point decrease from the January reading of 56.8%.

“The manufacturing economy continued its recovery in February. Survey committee members reported that their companies and suppliers continue to operate in reconfigured factories. Issues with absenteeism, short-term shutdowns to sanitize facilities and difficulties in hiring workers remain challenges and continue to cause strains that limit manufacturing growth potential. Optimistic panel sentiment increased, with five positive comments for every cautious comment compared to a three-to-one ratio in January. Demand expanded, with the (1) New Orders Index growing at a strong level, supported by the New Export Orders Index expanding at a faster rate; (2) Customers’ Inventories Index remaining in ‘too low’ territory (at 32.5%, tying its all-time low); and the (3) Backlog of Orders Index growing 4.3 percentage points compared to January.

“Consumption (measured by the Production and Employment indexes) contributed positively (a combined 4.3-percentage point increase) to the Manufacturing PMI calculation. Five of the top six industries reported moderate to strong expansion. The Employment Index expanded for the third straight month, but panelists continue to note significant difficulties in attracting and retaining labor at their companies and supplier facilities.

“Inputs — expressed as supplier deliveries, inventories and imports — continued to indicate input-driven constraints to production expansion at higher rates compared to January, as indicated by the Inventories Index returning to contraction territory and another month of slowing supplier delivery performance. Imports marginally slowed in the period, driven by port backlogs. The Prices Index expanded for the ninth consecutive month, indicating continued supplier pricing power and scarcity of supply chain goods.

“Of the six biggest manufacturing industries, five — chemical products; fabricated metal products; transportation equipment; computer and electronic products; and food, beverage and tobacco products — registered strong growth in February. Petroleum and coal products moderately contracted.

“Manufacturing performed well for the ninth straight month, with demand, consumption and inputs registering strong growth compared to January. Labor market difficulties at panelists’ companies and their suppliers continued to restrict manufacturing economy expansion and will remain the primary headwind to production growth until employment levels and factory operations can return to normal across the entire supply chain.”

Of the 18 manufacturing industries, 16 reported growth in February, including electrical equipment, machinery and transportation equipment. The two industries that reported contraction in February were printing and related support activities and petroleum and coal products.

What Respondents Are Saying

  • “The coronavirus [COVID-19] pandemic is affecting us in terms of getting material to build from local and our overseas third- and fourth-tier suppliers. Suppliers are complaining of [a lack of] available resources [people] for manufacturing, creating major delivery issues.” (Computer and Electronic Products)
  • “Supply chains are depleted. Inventories up and down the supply chain are empty. Lead times increasing, prices increasing [and] demand increasing. Deep freeze in the Gulf Coast expected to extend duration of shortages.” (Chemical Products)
  • “Steel prices have increased significantly in recent months, driving costs up from our suppliers and on proposals for new work that we are bidding. In addition, the tariffs and anti-dumping fees/penalties incurred by international mills/suppliers are being passed on to us.” (Transportation Equipment)
  • “We have experienced a higher rate of delinquent shipments from our ingredient suppliers in the last month. We are still struggling keeping our production lines fully manned. We anticipate a fast and large order surge in the food service sector as restaurants open back up.” (Food, Beverage and Tobacco Products)
  • “Overall capacities are full across our industry. Logistics times are at record times. Continuing to fight through shipping and increased lead times on both raw materials and finished goods due to the pandemic.” (Fabricated Metal Products)
  • “Prices are going up, and lead times are growing longer by the day. While business and backlog remain strong, the supply chain is going to be stretched very [thin] to keep up.” (Machinery)
  • “Things are now out of control. Everything is a mess and we are seeing wide-scale shortages.” (Electrical Equipment, Appliances and Components)
  • “Labor shortages at suppliers are affecting material deliveries and prices.” (Plastics and Rubber Products)
  • “We have seen our new order log increase by 40% over the last two months. We are overloaded with orders and do not have the personnel to get product out the door on schedule.” (Primary Metals)
  • “A sense of urgency is being felt regarding new orders. Customers are giving an impression that a presence of stability is forthcoming and order flow is increasing.” (Textile Mills)
  • “Prices are rising so rapidly that many are wondering if [the situation] is sustainable. Shortages have the industry concerned for supply going forward, at least deep into the second quarter.” (Wood Products)


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