Activity in the manufacturing sector expanded for the seventh consecutive month in February, according to a report released by the Institute for Supply Management on Monday, although the pace of growth slowed by more than economists had been anticipating.
The ISM said its index of activity in the manufacturing sector fell to 56.5 in February from 58.4 in January, with a reading above 50 still indicating growth in the sector. Economists had been expecting the index to show a more modest decrease to a reading of 58.0.
While the regional indicators had pointed to the potential for a small increase, James Knightley, an economist at ING Financial Markets, said, "The national measure seems to be reflecting much more the bad weather seen in the period."
A slowdown in the pace of new orders and production growth contributed to the weaker headline number. The new orders index fell to 59.5 in February from 65.9 in January, while the production index slipped to 58.4 from 66.2 in the previous month.
Nonetheless, Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee, said, "While new orders and production were not as strong as they were in January, they still show significant month-over-month growth."
The report also showed an encouraging reading on employment, as the employment index rose to 56.1 in February from 53.3 in January, indicating faster job growth in the manufacturing sector.
"With these levels of activity, manufacturers are seemingly willing to hire where they have orders to support higher employment," Ore said.
The inventories index also rose to 47.3 in February from 46.5 in January, although it continued to point to a contraction in inventories. This marked the 46th consecutive month of contraction.
With regard to inflation, the report showed that the prices index edged down to 67.0 in February from 70.0 in January, suggesting a slower pace of price growth.
Knightley said, "Despite the fall in today's ISM report it is still at levels consistent with real GDP growth of 4-5% - a very vigorous recovery."
"That said, we believe that this is telling only part of the story," he added. "The ISM is dominated by large companies that have access to capital markets and, importantly, access to exports. Smaller firms are doing less well."
by RTT Staff Writer
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