TEMPE, Ariz. — While the overall economy continues to grow, the manufacturing PMI takes a dip, as does the wood products and furniture and related products sectors. These two industry categories contracted in multiple categories in February, according to the latest report from the Institute for Supply Management (ISM).

Wood products contracted in the overall growth, production, employment, and customers' inventories categories. Furniture & other related products contracted the most in overall growth, import orders, and new orders, second in production, fourth in employment, and second in order backlogs.

Economic activity in the manufacturing sector contracted in February for the 16th consecutive month following one month of "unchanged" status (a PMI reading of 50 percent) and 28 months of growth prior to that, say the nation's supply executives in the latest Manufacturing ISM Report On Business.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee:

"The Manufacturing PMI registered 47.8 percent in February, down 1.3 percentage points from the 49.1 percent recorded in January. The overall economy continued in expansion for the 46th month after one month of contraction in April 2020," Fiore explains, "(A Manufacturing PMI above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index moved back into contraction territory at 49.2 percent, 3.3 percentage points lower than the 52.5 percent recorded in January. The February reading of the Production Index (48.4 percent) is 2 percentage points lower than January's figure of 50.4 percent. The Prices Index registered 52.5 percent, down 0.4 percentage point compared to the reading of 52.9 percent in January. The Backlog of Orders Index registered 46.3 percent, 1.6 percentage points higher than the 44.7 percent recorded in January. The Employment Index registered 45.9 percent, down 1.2 percentage points from January's figure of 47.1 percent."

Fiore also notes:

"The Supplier Deliveries Index figure of 50.1 percent is 1 percentage point higher than the 49.1 percent recorded in January. (Supplier Deliveries is the only ISM Report On Business index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index decreased 0.9 percentage point to 45.3 percent from January's reading of 46.2 percent."

"The New Export Orders Index reading of 51.6 percent is 6.4 percentage points higher than January's figure of 45.2 percent. The Imports Index continued in expansion territory, registering 53 percent, 2.9 percentage points higher than the 50.1 percent reported in January. Both indexes reported their highest readings since July 2022, when the New Export Orders Index registered 52.6 percent and the Imports Index 54.4 percent."

• Demand moderated, with the (1) New Orders Index back in contraction as seasonal headwinds were too strong to overcome, (2) New Export Orders Index returned to expansion and (3) Backlog of Orders Index improving but still in moderate contraction territory. The Customers' Inventories Index contracted for the third consecutive month, remaining accommodative for future production.
• Output (measured by the Production and Employment indexes) dropped, with a combined 3.2-percentage point downward impact on the Manufacturing PMI calculation. Panelists' companies maintained their production levels month over month, but that growth could not outpace seasonal factors. Head-count reductions continued in February, with notable layoff activity noted. 
•  Inputs — defined as supplier deliveries, inventories, prices and imports — continued to accommodate future demand growth but again showed signs of stiffening. The Supplier Deliveries Index improved again, moving into 'slower' territory, and the Inventories Index slid back due to inability for growth consistent with seasonal factors, remaining in moderate contraction territory. The Prices Index remained in moderate expansion (or 'increasing') territory as commodity driven costs continue to oscillate.

"Of the six biggest manufacturing industries, three (Fabricated Metal Products; Chemical Products; and Transportation Equipment) registered growth in February. The first two are "foundational" industries, meaning those that provide products and components for other manufacturing industries.

"Demand is at the early stages of recovery, and production execution is relatively stable compared to January, as panelists' companies begin to prepare for expansion. Suppliers continue to have capacity but are showing signs of struggling, due in part to their raw material supply chains. Forty percent of manufacturing gross domestic product (GDP) contracted in February, down from 62 percent in January. More importantly, the share of sector GDP registering a composite PMI® calculation at or below 45 percent — a good barometer of overall manufacturing weakness — was 1 percent in February, compared to 27 percent in January and 48 percent in December. Among the top six industries by contribution to manufacturing GDP in February, none had a PMI® at or below 45 percent, compared to two in the previous month," says Fiore.

The eight manufacturing industries reporting growth in February — in order — are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Primary Metals; Plastics & Rubber Products; Fabricated Metal Products; Chemical Products; Miscellaneous Manufacturing; and Transportation Equipment. The seven industries reporting contraction in February — in the following order — are: Furniture & Related Products; Machinery; Wood Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Paper Products; and Electrical Equipment, Appliances & Components.