US manufacturing sector struggling to recover -ISM

© Reuters. FILE PHOTO: Employees install cables on an electric truck as it moves down the assembly line at Battle Motors factory in New Philadelphia, Ohio, U.S., January 9, 2023. REUTERS/Timothy Aeppel/File Photo

WASHINGTON (Reuters) – U.S. manufacturing slumped further in February, with a measure of factory employment dropping to a seven-month low amid declining new orders.

The Institute for Supply Management (ISM) said on Friday that its manufacturing PMI fell to 47.8 last month from 49.1 in January. It was the 16th straight month that the PMI remained below 50, which indicates contraction in manufacturing.

That is the longest such stretch since the period from August 2000 to January 2002. Economists polled by Reuters had forecast the index edging up to 49.5. According to the ISM, a PMI reading below 42.5 over time indicates a contraction of the overall economy. That guidance has been revised down from 48.7.

The economy continues to grow, increasing at a 3.2% annualized rate in the fourth quarter.

Though higher borrowing costs have cooled demand for goods and weighed on business investment on equipment, the ISM survey and other sentiment surveys have painted an overly dire picture of manufacturing, which accounts for 10.3% of the economy.

The Fed is expected to start cutting interest rates sometime this year. Since March 2022, the U.S. central bank has raised its policy rate by 525 basis points to the current 5.25%-5.50% range.

So-called hard data from the government and Federal Reserve show manufacturing mostly treading water. Goods spending has largely bounced up and down.

The ISM survey’s forward-looking new orders sub-index dropped to 49.2 last month after rebounding to 52.5 in January.

Production at factories was subdued, with the sub-index declining to 48.4 from 50.4 in January. There was a slight hint of supply chain constraints, likely because of weather-related disruptions. The survey’s measure of supplier deliveries rose to 50.1 from 49.1 in the prior month. A reading above 50 indicates slower deliveries.

Inflation at the factory gate remained moderate. The survey’s measure of prices paid by manufacturers slipped to 52.5 from 52.9 January.

Factory employment continued to shrink. The survey’s measure of manufacturing employment dropped to 45.9, the lowest reading since last July, from 47.1 in January. This measure has, however, not been useful in predicting manufacturing payrolls in the government’s closely watched employment report. February’s employment report is scheduled to be published next Friday.