In the USA, Manufacturing PMI was announced as 47.3 in February and came below the expectation of 47.8. The decline in new sales leads to a further but slower decline in production. PMI details marked the biggest improvement in lead times since May 2009. Selling prices are rising at a sharper pace despite the softer increase in costs.
US manufacturing firms signaled a solid decline in the industry’s health in February, according to the latest PMI data from S&P Global. The deterioration in working conditions was largely due to further contraction in production and new orders, but growth rates slowed in both cases. It was reported that weak domestic and foreign customer demand caused a further decline in total new sales as firms adjusted their spending activities and inventory holdings accordingly. Meanwhile, reduced demand for inputs helped spur the biggest improvement in vendor performance since May 2009. Manufacturers increased their workforce numbers at the fastest rate in five months, resulting in further reductions in backlogs.
At the same time, the rate of wage inflation picked up again, as firms tried to pass higher costs to customers. Conversely, input costs rose at a softer rate.
The seasonally adjusted S&P Global US Manufacturing Purchasing Managers Index™ (PMI)™ was recorded at 47.3 in February, up slightly from 46.9 in January, but down from the previously published ‘flash’ forecast of 47.8. The latest data pointed to a robust deterioration in the health of the goods-producing sector, despite the slowest pace of decline in three months.
Another drop in new order entries contributed to the continued overall decline in manufacturing sector health in February. The contraction rate changed little from what was seen in January and was strong overall. Lower new sales were often attributed to destocking of customers weighing on customer demand. Foreign demand conditions also weakened further with the decline in new export orders in the ninth month. The rate of decline has accelerated since January. Shortage in customer demand led to the fourth consecutive monthly decline in production in the manufacturing sector in February.
The contraction rate softened at its slowest in three months, but remained steep by the survey’s historical standards. Input prices faced by manufacturing firms rose sharply in the middle of the first quarter as higher raw material costs pushed operating expenses up. However, the rate of cost inflation slumped to the second slowest level since September 2020 amid reports of falling prices of some items.
However, firms tried to pass higher costs to customers with another increase in selling prices in February. Wage inflation rate accelerated for the second month and was the fastest since November 2022. The rate of increase was well above the serial trend, although slower than what has been seen in the last two years. Supporting moderation in input costs was a solid improvement in supplier performance in the middle of the first quarter. Delivery times have been drastically reduced since May 2009 due to reduced demand for inputs and a reduction in logistics delays. Partly driving this development was a sharp decline in input purchases among producers. Firms preferred to deplete stocks as purchasing stocks and finished goods stocks narrowed.
Despite the decline in new orders, producers recorded the fastest job creation rate since September 2022.Firms reported that labor shortages eased as some long-standing vacancies were filled.
Finally, manufacturing firms remained optimistic in their expectations for the outlook for production over the next 12 months. The confidence rating was the second strongest since May 2022, although below the series trend.
“US production came under intense pressure in February,” said Chris Williamson, Chief Economist at S&P Global Market Intelligence. Although the PMI rose slightly, it continues to mark the steepest drop since 2009 outside of the pandemic lockdown months. What’s more, some of the improvement in production can be attributed to faster supplier lead times, the fastest paced since 2009 to facilitate higher production and keep factories working with orders placed earlier. The concern is that new order entries continue to fall sharply as many companies report disappointing sales; this is due in part to a continued trend towards cost-saving inventory reduction and low levels of trust in customers both at home and abroad. None of these indicate a healthy economic situation. There was brighter news that growth in factory jobs had picked up slightly amid reports of greater success in filling vacancies, and that the improvement in supply chains was helping to curb input cost inflation. However, increasing wage pressures and efforts to raise margins have meant that the average prices of goods leaving the factory gate have risen sharply once again; The inflation rate accelerated for a second month to signal stubbornly high price pressures. “