ISM Manufacturing Index: The Institute for Supply Management’s manufacturing index moved up 0.6% (m/m) to 47.7 for February 2023; this value is weaker than the forecast of 50. The new orders sub-index scored at 47.0. The reading pointed to a fourth consecutive month of falling factory activity with companies continuing to slow outputs to better match demand for the first half of 2023 and prepare for growth in the second half of the year.

The ISM manufacturing index is based on surveys of 300 purchasing managers in 17 industries. The survey is a diffusion index calculated as a percent of responses. A value of 50 is neutral, while less than 50 denotes contracting manufacturing activity and greater than 50 denotes expanding activity.

Figure 1 breaks down the composite index and sub-indexes. The backlogs sub-index was 45.1 this month, while the inventories sub-index was 50.1.

The four manufacturing industries that reported growth in February are: Apparel, Leather & Allied Products; Transportation Equipment; Petroleum & Coal Products; and Electrical Equipment, Appliances & Components. The 14 industries reporting contraction in February, in the following order, are: Printing & Related Support Activities; Paper Products; Wood Products; Textile Mills; Furniture & Related Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Chemical Products; Primary Metals; Computer & Electronic Products; Fabricated Metal Products; Machinery; and Miscellaneous Manufacturing.

“Business conditions are still strong; however, inventory has exceeded our planned levels. This will impact operations until the inventory situation is resolved.” [Primary Metals]

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 U.S. manufacturing.