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March 1, 2021 Reading Time: 2 minutes

The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index rose in February, registering a 60.8 percent reading for the month, the highest since May 2004. The February result is a gain of 2.1 points over the 58.7 percent result in January. February is the ninth consecutive reading above the neutral 50 threshold (see top of first chart). Over the past nine months, the Purchasing Managers’ index has averaged 57.1, the highest since March 2019. The survey results suggest that the manufacturing-sector recovery continues, though the most recent data on manufacturing output from the Federal Reserve suggests that output remains slightly below pre-pandemic levels.

Among the key components of the Institute for Supply Management’s most recent survey, the New Orders Index came in at 64.8 percent, up 3.7 percentage points from 61.1 percent in January (see top of first chart). The New Orders Index has been above 50 for nine consecutive months and above 60 for eight consecutive months. The eight-month average is 64.3, the highest since August 2004. The new export orders index, a separate measure from new orders, rose to 57.2 versus 54.9 in January. The new export orders index has been above 50 for eight consecutive months.

The Production Index registered a 63.2 percent result in February, up from 60.7 percent in January. The index has been above 50 for nine consecutive months and above 60 for the last eight months (see bottom of first chart). The eight-month average is 62.3, the highest since June 2018.

The Employment Index rose in February, adding 1.8 percentage points to 54.4 percent in February, the highest since March 2019. The employment index remains one of the weaker components, posting just four months above the neutral 50 mark over the past 20 months (see bottom of first chart). The Bureau of Labor Statistics’ Employment Situation report for February is due out on Friday, March 5th. Consensus expectations are for a gain of 180,000 nonfarm-payroll jobs including the addition of 12,000 jobs in manufacturing. The unemployment rate is expected to hold steady at 6.3 percent.

The Backlog-of-Orders Index rose again, coming in at 64.0 percent in February, up from 59.7 percent in the prior month and the second-highest level since the series began in 2013 (see second chart).

Customer inventories in February are still considered too low, with the index remaining below 50 at 32.5 percent versus 33.1 percent in the prior month (index results below 50 indicate customers’ inventories are too low; see second chart). The index has been below 50 for 55 consecutive months and is the lowest since December 2009. Insufficient inventory may be a positive sign for future production.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals.

Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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