- Topline ISM Purchasing Managers’ Index bounced to 58.6, from 57.6 in January 2022
- The Employment component index dipped to 52.9 in February, its first decline since August 2021
- The Export Orders component index rose to 57.1 in February, returning to a level near pandemic-era highs
- Commodity Prices softened slightly in February but remain elevated by both recent and long-term standards
The ISM (Institute for Supply Management) Purchasing Managers’ Index stabilized in February 2022, rising to 58.6 after three consecutive months of declines from 60.8 in October 2021. Markets had expected a smaller rise for the month, to 58.0. A reading above 50 for this diffusion index indicates expansion across the manufacturing industry. Gains in the New Orders, Production, and New Export Orders component indices provided a robust foundation for the month’s overall index gain. Manufacturers continue to fight supply chain disruptions and labor shortages but appear to be finding productivity gains to offset adverse operating pressures. The Supplier Deliveries component of the ISM Purchasing Managers’ Index saw one of the strongest gains on the month, rising from 64.6 to 66.1, demonstrating that manufacturers are continuing a strong push toward meeting customer demand.
Price pressures remain a cause for concern as the U.S. economy deals with high inflation across the board. The ISM Purchasing Managers’ index’ Commodity Prices component index fell modestly in February 2022, to 75.6 from 76.1 in January. This reading contrasts with readings in the mid-60s range before the economy’s inflation engines heated up in the second half of 2021 but also is down from the highest readings of the past year (92.1 in June 2021; low 80s range in September-November 2021). Still, well above the expansionary threshold reading of 50, Commodity Price pressures suggest that inflation is not ready to settle. Manufacturers’ higher prices will fuel consumer price inflation into the middle of 2022 as those manufacturer costs are passed on to customers – with continued consumer spending strength indicating little resistance to that cost pass-through relationship.
Manufacturers’ inventories rose marginally, to 53.6 from 53.2 in January. This ends a four-month stretch of declines toward the expansionary threshold of an index reading of 50 after this component index peaked at a near-record 56.4 in October 2021. Again, this component index glimpses a win for manufacturers in their struggle to continue operations while being hamstrung by supply chain disruptions and labor concerns. Remaining in expansionary territory with all the challenges facing the industry bodes well for the medium-term outlook in that manufacturers seem capable of ramping up production once their own raw materials and input needs rise back to normalcy.
The Backlog of Orders component index of the ISM Purchasing Manufacturers’ Index rose strongly in February 202, to 65.0 from 56.4 in January. This 8.6 index point gain is the strongest since the pandemic began, and is the strongest monthly increase posted since January 2011. This component combines with a decline from the persistently low Customer Inventories index (31.8; 33.0 in January 2022) to reveal no slowdown in demand for manufacturers’ output.
A slowdown in demand could emerge in the coming months as the dampening effects of already-faltering consumer confidence could be compounded by geopolitical upheaval in Ukraine. Rising price pressures and monetary policy also have the potential to exert downward pressure on consumer demand trends as 2022 wears on. Manufacturers are not likely to want demand to ease, but such a development would certainly provide them with the opportunity to play catch-up regarding persistent inventory and supply chain imbalances.
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