The February 2013 ISM Manufacturing Survey shows PMI increased by 1.1 percentage points to 54.2% and is in expansion for the 3rd month in a row. This is the 5th time in nine months manufacturing PMI has been in expansion and the highest manufacturing PMI since June 2011. Overall the report is solid manufacturing expansion and a pleasant surprise considering U.S. politics.
This month's ISM report comments from manufacturing survey responders are mostly positive, noting business is picking up. The exception was Chemical products, which reported demand seemed soft and outside of seasonal patterns. Computers said they are experiencing a slow down from the DoD.
New Orders increased 4.5 percentage points to 57.8%. New Orders inflection point, where contraction turns into expansion for the long term, isn't exactly 50%, it is 52.3% for new orders. The jump for February implies demand is really picking up for manufacturing.
A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders.
The Census reported manufactured January durable goods new orders growth was -5.2%, where factory orders, or all of manufacturing data, will be out March 6th. The ISM claims the Census and their survey are consistent with each other. To wit, below is a graph of manufacturing new orders percent change from one year ago (blue, scale on right), against ISM's manufacturing new orders index (maroon, scale on left) to the last release data available for the Census manufacturing statistics. Here we do see a consistent pattern between the two.
Below is the ISM table data, reprinted, for a quick view.
|ISM Manufacturing February 2013|
|Index||Feb 2013||Jan 2013||% Change.||Direction||Rate of Change||
|Customers' Inventories||46.5||48.5||-2.0||Too Low||Faster||15|
|Backlog of Orders||55.0||47.5||+7.5||Growing||From Contracting||1|
Production, which is the current we're makin' stuff now meter, increased 4.0 percentage points from last month to 57.6%, which confirms business is picking up. Production usually follows incoming orders in the next month.
ISM's manufacturing production index loosely correlates to the Federal Reserve's industrial production, but not at 50% as the inflection point, instead 51.2% to indicate growth. Below is a graph of the ISM manufacturing production index (left, maroon), centered around the inflection point, quarterly average, against the Fed's manufacturing industrial production index's quarterly change (scale right, blue). We can see there is a matching pattern to the two different reports on manufacturing production.
The manufacturing ISM employment index declined 1.4 percentage points to 52.6%, but is still in expansion for the 3rd month in a row. The neutral point for hiring vs. firing is 50.1%. Below are the BLS manufacturing non-farm payrolls (jobs) for the past decade on the left (maroon), graphed against the ISM manufacturing employment index on the right (blue). The BLS manufacturing payrolls is the monthly percentage change and the ISM manufacturing employment index is centered around it's inflection point of contraction and employment growth. This is just monthly change, manufacturing has lost approximately 6 million jobs over the graphed time period.
Inventories increased by 0.5 percentage points to 51.5%. In December 2009 inventories came in at 41.9% for comparison's sake. The ISM claims inventories are correlated to manufacturing inputs, that are part of GDP. Changes in nonfarm inventories, of which manufacturing is only a part, subtracted -1.55 percentage points to Q4 2012's 0.1% GDP.
An Inventories Index greater than 42.8 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories.
Supplier deliveries are how fast manufacturers can get their supplies. A value higher than 50 indicates slower delivery times, a value below 50 means the supply chain is speeding up. The index declined, a -2.2 percentage point change to 51.4% and is the 4th month in a row for slower deliveries.
One of the better bits of news from this months report is backlog of orders. They jumped up by 7.5 percentage points, to 55%. ISM reports this is the 1st month of growth since March 2012. More order backlogs would imply production and thus hiring would be stepped up. At the top of the list for increased order backlogs is Furniture. The two sectors reporting a decrease in backlog orders are Computers & Electronics as well as Wood Products.
Imports increased 4.0 percent points to 54.0% and and moved into expansion. Imports are materials from other countries manufacturers use to make their products.
New orders destined for export, or for customers outside of the United States, increased 3.0 percentage point to 53.5% and is in expansion, the 3rd; month since May 2012.
The ISM price index increased 5.0 percentage points to 61.5%. Prices are what manufacturers pay to make their products and this month means prices are increasing, and at a faster rate. In April 2009 the price subindex was 32%.
Customer's inventories declined, -2.0 percentage points to 46.5%. Below 50 means customer's inventories are considered by manufacturers to be too low. Customer inventories, not to be confused with manufacturer's inventories, are how much customers have on hand, and rates the level of inventories the organization's customers have.
Here is the ISM industrial sector ordered list of growth and contraction. Chemical products reported contraction last month as well.
Of the 18 manufacturing industries, 15 are reporting growth in February in the following order: Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Paper Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Fabricated Metal Products; Furniture & Related Products; Petroleum & Coal Products; Wood Products; Printing & Related Support Activities; Transportation Equipment; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Machinery; and Primary Metals. The three industries reporting contraction in February are: Textile Mills; Computer & Electronic Products; and Chemical Products.
The ISM has a correlation formula to annualized real GDP, but they are now noting the past correlation. Notice also that the PMI went to equal weighting in 2008. February's data, the ISM get a 3.7% 2013 annual real GDP. The below graph plots real GDP, left scale, against PMI, right scale, GDP up to Q4 2012. One needs to look at the pattern of the two lines to get anything out of this by quarters graph. If they match, GDP goes up, PMI goes up, would imply some correlation. Of all of the ISM's correlations, this is the one which consistently is way off.
The ISM neutral point is 50, generally. Above is growth, below is contraction, There is some some variance in the individual indexes and their actual inflection points. For example, A manufacturing PMI above 42, over time, also indicates growth, even while manufacturing is in the dumpster. Here is last month's manufacturing ISM overview, unrevised. The ISM has much more data, tables, graphs and analysis on their website. For more graphs like the above, see St. Louis Federal Reserve Fred database and graphing system. PMI™ stands for purchasing manager's index. On ISM correlations to other indexes, when in dollars they normalized to 2000 values. The above graphs do not do that, so our graphs are much more rough than what the ISM reports these indices track.