ISM Manufacturing Index for February 2007; The PMI Returns to the Black

The Institute for Supply Management just released its monthly manufacturing Report on Business survey (the old PMI), and the results came in with a slightly-positive reading of 52.3, up from 49.3 in January.  The report seems to have provided for a small relief rally in the markets; the 52.3 number was a slight upside surprise, but considering the consensus figure was the all-too-lazy 50, basically nobody had the foresight or conviction to make a real prediction. 

The overall PMI just can’t seem to get back to the mid-50’s and higher levels seen throughout the majority of 2006.  Still, it was an overall favorable report, with index readings up across the board from January, when many sub-indexes fell to levels considered representative of a contracting economy. 

Order Backlog showed the highest increase of any PMI components, jumping 8% from January’s 43.5 reading to 51.5 in Feb.

There were two major signs of concern in the report:

First, the index for Customer Inventories (as measured by manufacturers) notched up higher again to 53 from 52 in January, so the inventory trend seen in yesterday’s Chicago report seems intact, though tamer.  Inventory levels had been in the favorable readings category of below 50 for over five straight years before November 2006, so the trend forming here will be an important one to follow for the upcoming months in terms of its length and magnitude.

Secondly, the Prices paid index spiked to 59, up 6% from last month.  Higher prices being paid here generally get passed right down the line.

Industries reporting growth included Apparel, Petroleum & Coal Products, Plastics & Rubber Products, Computer & Electric Products, and Food, Beverage & Tobacco Products.  Of the major commodities covered, the only one listed as “in short supply” was electric components. 

Ryan Barnes