ISM Manufacturing Index
ISM Manufacturing Index: The Institute of Supply Management’s Index moved down 0.8 points on month, (m/m) to 50.9 for February 2020, this value is a little weaker than the forecast of 50.7. The index has been greater than 47, (>50 = expansion) for two consecutive months. The new orders sub-index scored a 49.8. Overall, the ISM manufacturing index is strong, and fundamentals remain favorable as the global economy strengthens and the U.S. dollar depreciates.
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 breaks down the detail of the composite index and sub-indexes. The composite index score for February was 50.9. One year ago, the composite index was a strong at 56.6.
Figure 2 shows the history of the ISM manufacturing index from 2009 to present. On a 3-month moving average, (3MMA) basis, the index posted a value 49.90, down 10.2% 3-months year on year (y/y). When examined on a 12MMA y/y comparison, the index decreased by 13.2% y/y.
Breaking down the sub-indexes for the monthly numbers: Inventory, (not seasonally adjusted) sub-index moved down 2.3 points m/m to 46.5 in February. The production sub-index decreased by 4.0 points to 50.3. The employment index moved up by 0.3 of a point to 46.9. The order backlogs which also increased by 4.6 of a point to 50.3.
Of the 18 manufacturing industries, 16 reported growth in new orders in February, in the following order: Wood Products; Paper Products; Printing & Related Support Activities; Primary Metals; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Textile Mills; Furniture & Related Products; Computer & Electronic Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Fabricated Metal Products; Machinery; Food, Beverage & Tobacco Products; and Chemical Products. The two industries reporting a decline in new orders in February are: Petroleum & Coal Products; and Transportation Equipment.
An Institute for Supply Management respondent stated, “Coronavirus continues to be front and center as a major supply chain risk to our company. Access to information in China — from our supply base and customers — is slow to come by.” (Fabricated Metal Products)
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.