The global economic picture has run into its share of concerns in 2020. The phase-one trade pact between the United States and China was supposed to rekindle trade and manufacturing. Then very shortly after the pact was signed came the news of the rapidly spreading coronavirus in China, and now the virus has appeared in most countries around the globe. The United States may not be considered a manufacturing economy these days, but many U.S. companies are still deep into manufacturing, and they have subsidiaries and business partners around the globe that manufacture.
China’s manufacturing report for February showed the largest decline since they started keeping tabs on the data. Now, two fresh competing looks at U.S. manufacturing data for the month of February would be considered a mixed bag, aside from comparing the data to China.
The ISM Manufacturing report came in with a mere 50.1 reading for February, after having been at 50.9 in January. That is barely above the 50.0 implied breakeven line and was short of the 50.8 consensus expectation from Dow Jones.
Of the 18 manufacturing industries, 14 remained in the growth readings. One was flat, and the three industries in the report showing contraction in February were: Petroleum & Coal Products, Transportation Equipment, and Nonmetallic Mineral Products.
According to the ISM data, the new orders were weak despite export orders expanding, inventories remain too low and backlogs expanded at a slow rate. Consumption was a negative contribution, for a combined 3.7-percentage point decrease on the total calculation, while imports contracted and inputs contributed positively. Prices also returned to contraction in that report.
An earlier report on Monday from the PMI Manufacturing Index from IHS Markit also showed that the headline reading of 51.9 in January fell to 50.7 in February. The Econoday consensus expectation there was 50.8. This reading showed that operating conditions improved at the softest pace for six months, while new order growth slowed to a nine-month low, even as overall business confidence was the strongest since April 2019. That report said:
The improvement in the health of the manufacturing sector was the weakest since last August and only marginal overall. … A key contributing factor behind slower manufacturing growth was a weaker upturn in output. The marginal expansion was the softest since July 2019, and although some firms reported higher new order volumes, supply chain issues following the outbreak of coronavirus in China were reported to have affected production and constrained output in some cases. … The pace of expansion of new orders meanwhile eased to the slowest since orders began rising in June 2019 and was only fractional overall.
Perhaps the biggest concern here about manufacturing data is that IHS Markit pointed out that historical comparisons against official data would suggest that factory production and factory orders are both falling at annualized rates of about 3% and that manufacturing jobs are being lost at a monthly rate of close to 20,000.
Chris Williamson, chief business economist at IHS Markit, said of February’s report:
Manufacturing production and order book trends deteriorated markedly in February as producers struggled against the double headwinds of falling export sales and supply chain delays, both in turn often linked to the coronavirus outbreak. … Any growth in sales was once again largely driven by domestic consumers, though even here the rate of growth was weakened considerably compared to late last year.
The equity markets were volatile on Monday, following the worst week since the financial crisis. As of 10:30 a.m. the Dow Jones industrials were up close to 100 points and the S&P 500 was up only about two points. The yield on the 10-year Treasury note was down at 1.07%, and the yield on the 30-year Treasury bond was 1.63%.
The big question now is whether the PMI and ISM data in March will start to fall off a cliff like it did last month in China. Even the general direction of that data will not be known for another week or two (if not longer).
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