For the first time in four months, the pace of growth at U.S. manufacturers slowed in February, according to data released Thursday that rattled markets and raised questions about U.S. economic strength.
A gauge of manufacturing from the The Institute for Supply Management declined to 52.4% in February from 54.1% in January. Readings over 50% indicate that manufacturers are generally expanding.
Economists polled by MarketWatch had expected a reading of 55% for February based on improving regional results and employment data.
The ISM’s decline “is hardly a disaster but it does support our view that the economy is not quite as strong as recent data have led others to believe,” said Paul Dales, senior U.S. economist at Capital Economics.
The ISM reading is consistent with annualized economic growth of about 2%, he added.
Other disappointing reports on Thursday indicated that consumer spending rose 0.2% in January, below analysts’ expectations. And construction spending fell 0.1% in January, also below economists’ expectations.
Stocks eased gains after negative data released on Thursday.
However, analysts at RDQ Economics noted that the ISM report, though disappointing, is consistent with “fairly solid expansion in manufacturing.”
Bradley Holcomb, chair of the Institute for Supply Management’s manufacturing business survey committee, said “there is a “generally positive outlook for the next few months.”
Given other recent positive data, analysts had expected a better ISM report for February. A gauge tracking manufacturing activity in the New York region jumped in February to its highest level since June 2010.
Elsewhere, a barometer of manufacturing activity in the Philadelphia area reached a four-month high in February.
Thursday morning, the U.S. government reported that new applications for U.S. unemployment benefits ticked declined 2,000 to a seasonally adjusted 351,000 in the week ended Feb. 25, a level consistent with modest hiring trends.
Manufacturing details
Growth was reported in February by 11 manufacturing industries, such as apparel; leather and allied products; and machinery, according to ISM. Among the four industries that reported a contraction were furniture and related products; nonmetallic mineral products; and plastics and rubber products.
The new-orders index, an indication of future demand, declined to 54.9% in February from 57.6% in January.
“Demand from auto makers is getting stronger,” said an executive at a fabricated-metal-product company.
The production index ticked lower to 55.3% from 55.7%. Meanwhile, the employment index fell to 53.2% from 54.3%.
The employment decline “is worrying as it points to a small drop in manufacturing payrolls,” according to Dales at Capital Economics.
Source: MarketWatch