Surveys: Manufacturing & Non-Manufacturing Sectors Gaining Steam

Economic activity in the U.S.’s manufacturing and services sectors grew in February, according to two recently released, closely watched surveys from The Institute for Supply Management. Bolstered by increased factory activity, ISM’s manufacturing index rose from 56 in January to 57.7 last month – the highest reading since August 2014. Meanwhile, ISM’s non-manufacturing index increased to the highest level since October 2015, reaching 57.6, up from 56.5 the month prior.

Readings above 50 indicate economic expansion in each sector. Both the manufacturing and non-manufacturing indexes outperformed the expectations of economists.

Bradley J. Holcomb, chair of ISM’s business manufacturing survey committee, said manufacturers were generally quite optimistic. “Comments from the panel largely indicate strong sales and demand, and reflect a positive view of business conditions with a watchful eye on commodities and the potential for inflation,” Holcomb said. Confidence was also pervasive in the non-manufacturing sector, despite some reservations. “Respondents’ comments continue to be mixed, with some uncertainty; however, the majority indicate a positive outlook on business conditions and the overall economy,” said Anthony Nieves, chair of ISM’s non-manufacturing survey committee.

According to ISM, 16 non-manufacturing industries experienced growth in February. These included retail trade, finance/insurance, real estate, utilities, transportation/warehousing, and construction. The survey contains sub-indexes that zero in on particular facets of the non-manufacturing sector. ISM’s non-manufacturing business activity index increased to 63.6, reflecting growth for the 91st consecutive month. Meanwhile, the new orders index registered 61.2 – the highest reading since August 2015. The employment index increased to 55.2, up from the January reading of 54.7.

Of the 18 manufacturing industries, 17 reported growth in February, including textile mills, apparel/leather products, machinery, computer/electronic products, primary metals, and plastics/rubber products. In manufacturing, the new orders index registered a reading of 65.1, an increase of 4.7 percentage points from January. The production index also rose – to 62.9. Inventories of raw materials increased 3 percentage points to 51.5. However, some sour notes sounded on employment and pricing. The employment index decreased 1.9 percentage points to 54.2, while the prices index dropped a percentage point, indicating higher raw material costs for the 12th consecutive month.