Those who watch the manufacturing industry are well aware of the ups and downs of the past two months. That is also reflected in several reports out on the economy of manufacturing. The Institute for Supply Management's February 2015 Manufacturing ISM Report on Business shows that economic activity in that sector expanded in February for the 26th consecutive month. However, before we get too excited, the Purchasing Management Index (PMI) actually dropped from 53.5% in January to 52.9% in February, meaning manufacturing basically flat-lined last month.
Of the 18 manufacturing industries tracked by ISM, 12 reported growth in February, down from 15 industries reporting growth in January. There was no mention of where plastics and rubber products stood. The plastic processing industry is affected by the price of oil in both positive and negative ways. Resin-based products as well as HDPE, LDPE, PET and PP are showing declines in price. While that might sound like good news, one plastics industry respondent to ISM's February survey commented, "Customer behavior is being negatively impacted by ongoing resin price decreases. Order placement being delayed to receive lower finished good pricing."
That may account for the flat-lining of the New Orders Index, as well, with new orders dropping from 52.9% in January to 52.5% in February. Production also dropped in February to 53.7% from 56.5% in January. Employment dipped to 51.4% in February from January's figure of 54.1%.
Inventories are also reflecting this slow-down in production, with February's number growing to 52.5% from 51.0% in January. Customers are having inventory problems, with the numbers appearing to translate into customer inventories still being too low, although the figure bumped up 4.0% from 42.5% in January to 46.5% in February. Prices are continuing to decrease and are basically flat at 35.0% in both January and February. Some good news is that backlog of orders jumped to 51.5% in February from 46.0% in January, a nice growth of 5.5%.
Some respondents in various manufacturing industries noted that the dock slowdown/strike on the West Coast was responsible for some of the flatness in manufacturing. That was mentioned several times in the February report released on March 2.
Last week the U.S. Department of Commerce released its advance report on Durable Goods Manufacturers Shipments, Inventories and Orders for January. New orders for manufactured durable goods (goods lasting three years or longer) in January increased $6.5 billion, or 2.8%, to $236.1 billion. This increase, after two consecutive monthly decreases, followed a 3.7% December decrease. Excluding transportation, new orders increased 0.3%. Excluding defense, new orders increased 3.0%.
Transportation equipment, also up following two consecutive monthly decreases, led the increase with $6.0 billion, or 9.1%, to $72.1 billion.
Shipments of manufactured durable goods in January, down three of the last four months, decreased $2.7 billion, or 1.1%, to $245.1 billion. This followed a 1.5% December increase. Transportation equipment, down two of the last three months, led the decrease of $1.3 billion, or 1.7%, to $73.9 billion.
Inventories of manufactured durable goods in January, up 21 of the last 22 months, increased $1.8 billion, or 0.4%, to $412.5 billion. This was the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.5% December increase.
Nondefense new orders for capital goods in January increased $6.9 billion, or 9.5%, to $79.8 billion. Shipments increased $0.8 billion, or 1.0%, to $80.2 billion. Unfilled orders decreased $0.5 billion, or 0.1%, to $731.0 billion. Inventories increased $0.2 billion, or 0.1%, to $186.9 billion.