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Economy in Brief

ISM Manufacturing Index Unexpectedly Improves in February
by Tom Moeller  March 1, 2022

• Index largely reverses January decline.

• New orders & production increase.

• Prices paid dip.

The factory sector regained strength last month. The Institute for Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity rose to 58.6 during February, almost a complete reversal of January's decline to 57.6. Despite the increase, the index remained below its March 2021 high of 63.7. A level of 58.0 in February had been expected in the Action Economics Forecast Survey. During the last 15 years, there has been a 43% correlation between the composite index and the quarterly change in real GDP.

The new orders index increased to 61.7 in February from 57.9 in January. The level remained down from a high of 67.4 in December 2020. Thirty-three percent (NSA) of respondents reported higher new orders versus 42.4% a year earlier while a steady six percent reported a decline. The production index rose to 58.5 from 57.8 in January, but has been trending lower from its March 2021 high of 66.4. The supplier delivery series rose to 66.1, the highest level in three months. It nevertheless indicated quicker product delivery speeds than in May 2021 when the index peaked at 78.8. The inventories index edged higher to 53.6 from 53.2 in January, but remained below the October 2021 high of 56.4.

The employment index declined to 52.9 in February from 54.5 in January. It was the lowest level since October 2021. An increased 21.6% (NSA) of respondents reported more hiring versus 19.2% in February of last year while 16.0% reported a decline in jobs, up from 12.3% twelve months earlier.

Also moving lower in February was the prices paid index to 75.6 after increasing to 76.1 in January. The index remained well below the June 2021 high of 92.1. Fifty-six percent (NSA) of respondents reported higher prices versus 73.1% a year earlier, while an increased five percent reported price declines.

In other ISM series not included in the composite, the order backlog figure jumped to 65.0 (NSA) in February, remaining well below the high of 70.6 in May 2021. The new export measure strengthened to 57.1, its highest level in twelve months. The imports index was little-changed in February at 55.4, up from an October 2021 low of 49.1.

The ISM figures are based on responses from over 400 manufacturing purchasing executives from 20 industries, which correspond to their contribution to GDP in 50 states. These data are diffusion indexes where a reading above 50 indicates expansion. The figures from the Institute for Supply Management can be found in Haver's USECON database; further detail is found in the SURVEYS database. The expectations number is available in Haver's AS1REPNA database.

ISM Mfg (SA) Feb Jan Dec Feb '21 2021 2020 2019
Composite Index 58.6 57.6 58.8 60.9 60.6 52.5 51.2
 New Orders 61.7 57.9 61.0 66.4 64.3 54.0 51.2
 Production 58.5 57.8 59.4 62.8 61.0 53.7 51.2
 Employment 52.9 54.5 53.9 53.7 52.8 44.3 50.9
 Supplier Deliveries 66.1 64.6 64.9 72.0 72.8 61.6 52.9
 Inventories 53.6 53.2 54.6 49.9 52.2 48.8 49.8
Prices Paid Index (NSA) 75.6 76.1 68.2 86.0 83.8 54.0 49.1
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