Source: Economics Group of Wells Fargo Bank, N.A.
Summary
The ISM has been in contraction for 16-straight months, and employment fell to its second-lowest reading since 2020. Yet, if we zoom in on the industry-level breakdown and zoom out to include regional Fed surveys, we see some encouraging signs of life in manufacturing.Heavy Industry Is Getting Back on Its Feet
The ISM manufacturing index slipped 1.3 points to 47.8 in February (chart). The drop comes after the index hit a 15-month high at the start of the year, and the details are not what you want to see when it comes to the ISM. New orders, production and employment were all down, and while the measure of prices paid declined, it is still consistent with an expansion in prices last month (chart).
The largest decline was in new orders where the 3.3 point drop pushed the component back below 50 for the 17th time in the past 18 months. The February decline in new orders also marks the largest one-month pullback in new orders since September 2022. This outturn makes January’s pop look like a potentially seasonal-related fluke, despite the series being adjusted for seasonal factors.
The select industry comments strike a notably more optimistic tone than the ISM components suggest. Purchasing managers cited increasing sales, strong expectations for 2024, demand picking up, steady orders and a stable business outlook. In fact, the only glimmer of pessimism in the selected comments came from the computer & electronic products respondent who said, “customer softness continues in China, Japan and Europe.” In addition, some respondents stated weather challenges idled operations and shipments in the nonmetallic mineral products’ industry.