The Institute of Supply Management’s Index moved up 1.6 points month on month, (m/m) to 54.2 for February 2019. This continues the trend of the index being greater than 50, (>50 = expansion), now for 30 consecutive months. The new orders sub-index scored a 55.2. Overall, the manufacturing activity expanded at a slower rate than expected and reached lowest levels since November 2016
The ISM manufacturing index is based on surveys of 400 purchasing managers in 20 industries. The survey is a diffusion index calculated as a percent of responses. A value of 50 is neutral, while less than 50 is contracting and greater than 50 is expansionary.
Figure 1 shows the history of the ISM manufacturing index from 2003 to present. On a 3 month moving average, (3MMA) basis, the index posted a value 55.03, down 8.1% 3 months year on year (y/y). When examined on a 12MMA y/y comparison, the index remained flat y/y.
Table 1 breaks down the detail of the composite index and sub-indexes. The composite index score for November was 59.3. One year ago, the composite index was a still solid at 60.8.
Breaking down the sub-indexes for the monthly numbers: Inventory, (not seasonally adjusted) sub-index moved-up 0.6 points m/m to 53.4 in February 2019. ISM notes business is positive, new equipment sales and inquiries are strong, and the parts business is strong. Raw material costs, especially steel, appear to be leveling off. Cost of manufactured components has also leveled off. Most suppliers are willing and able to suppress cost increases. Tariff impacts are still a concern.
Of the 18 manufacturing industries, 16 reported growth in November, in the following order: Computer & Electronic Products; Apparel, Leather & Allied Products; Textile Mills; Paper Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Furniture & Related Products; Machinery; Nonmetallic Mineral Products; Transportation Equipment; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Plastics & Rubber Products; Fabricated Metal Products; Chemical Products; and Printing & Related Support Activities. The two industries reporting contraction in August are: Wood Products; and Primary Metals
The production sub-index decreased by 5.7 points to 54.8. The employment index moved down by 3.2 points to 52.3.
At Gerdau we closely monitor the ISM manufacturing index since it is an excellent barometer of the present strength as well as a window on the likely short-run future of US manufacturing.