Summary
Earlier today, the Institute for Supply Management reported that its index measuring the nation's manufacturing activity registered an unexpected decline in February. The latest data also indicated a further easing in price pressures, although these remained at levels historically high by ISM's measurement standards.
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The Institute for Supply Management reported today that its index measuring the economy's February manufacturing activity ("PMI") came in at a reading of 55.3, down from January's 56.4. The February result was below a consensus forecast that was looking for something around 57.0.
This index is configured such that readings above 50.0 indicate sector expansion. Readings below this value are consistent with contraction.
The February decline in the PMI was the third in a row. And while February's 55.3 reading denoted decent strength in the manufacturing sector, it was well below the index's most recent peak -- 62.8 in January of last year.
The PMI's price component fell 3.5 points in February, to 65.5. However, as in the overall index, values above 50.0 indicate expansion, so February's 65.5 reading remained quite strong. In fact, February represented the 36th consecutive month in which this measure showed rising prices. In May of 2003, the recent trough, the price component stood at a much lower 51.5.
If firms are passing these higher prices along, it is contributing to inflationary pressures. And if they are not able to pass them along, rising prices are contributing to a squeeze on profit margins.
ISM announced that 35% of its survey respondents reported higher prices during February, while 7% reported lower ones. This was an improvement from January's results, which were 45% and 7%, respectively. However, the overall shift in skew from the trough during the summer of 2003 remained intact. For instance, in August 2003, these numbers were 19%/13%.
To illustrate how the numbers have been trending, the following table examines overall and price data over the last 26 months. The final section breaks out specific commodities that were up and down in price or were in short supply during February, as reported to ISM by its survey respondents.
(NOTE: December and prior data have been revised to reflect new US Department of Commerce seasonal-adjustment factors used by ISM. In its manufacturing index, ISM does not seasonally adjust the price component.)
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INSTITUTE FOR SUPPLY MANAGEMENT PMI INDEX
-- TOTAL INDEX AND PRICE COMPONENT
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Respondents Reporting
Higher, Lower, or
Unchanged Prices
Month/ Overall Price ---------------------
Year Index Index Higher Lower Unch.
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02/05 55.3 65.5 38% 7% 55%
01/05 56.4 69.0 45% 7% 48%
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12/04 57.3 72.0 52% 8% 40%
11/04 57.6 74.0 55% 7% 38%
10/04 57.5 78.5 61% 4% 35%
09/04 59.1 76.0 55% 3% 42%
08/04 59.6 81.5 67% 4% 29%
07/04 61.6 77.0 58% 4% 38%
06/04 61.2 81.0 66% 4% 30%
05/04 62.6 86.0 74% 2% 24%
04/04 62.3 88.0 77% 1% 22%
03/04 62.3 86.0 73% 1% 26%
02/04 62.1 81.5 65% 2% 33%
01/04 62.8 75.5 54% 3% 43%
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12/03 62.1 66.0 37% 5% 58%
11/03 61.3 64.0 33% 5% 62%
10/03 57.7 58.5 26% 9% 65%
09/03 55.1 56.0 21% 9% 70%
08/03 55.6 53.0 19% 13% 68%
07/03 52.5 53.0 21% 15% 64%
06/03 50.4 56.5 26% 13% 61%
05/03 49.8 51.5 21% 18% 61%
04/03 46.1 63.5 37% 10% 53%
03/03 46.4 70.0 47% 7% 46%
02/03 49.9 65.5 <------ NA ------>
01/03 52.8 57.5 <------ NA ------>
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On Thursday (3/3), ISM will report its index covering activity in the economy's non-manufacturing sector.
Commodities Reported Up in Price During February:
(NOTE: The number of consecutive months the commodity is listed is indicated after each item.)
Aluminum (16); Benzene; Butadiene (3); Caustic Soda (10); Chemicals (13); Copper (5); Corrugated Containers (13); Crude Oil; Diesel Fuel (6); Energy; Freight (12); Fuel; Gasoline; Industrial Gases; Low-Density Polyethylene; Natural Gas* (31); Paper (12); Plastic Products (various forms) (13); Plastic Resin; Plastics (7); Polypropylene Resins (2); Pulp; Resins (7); Stainless Steel (6); Steel (17); Steel, Coated Sheet; Steel Products (various forms) (7); and Titanium Dioxide (2).
Commodities Reported Down in Price During February:
Cold-Rolled Steel; Hot-Rolled Steel; Natural Gas* (4); and Steel Scrap (2).
*Reported as both up and down in price.
Commodities Reported in Short Supply During February:
Aluminum; Caustic Soda; and Steel (14).
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