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US manufacturing activity cools in February and worse may be yet to come

By Alexander Bueso

Date: Friday 01 Mar 2019

US manufacturing activity cools in February and worse may be yet to come

(Sharecast News) - US manufacturing activity cooled last month, according to the most widely-followed survey of conditions in that sector, with some economists warning that "worse is probably yet to come".
The Institute for Supply Management's factory Purchasing Managers' Index slipped from a reading of 56.6 for January to 54.2 in February.

Consensus had been for a reading of 56.0.

The key gauges contained in the report linked to new orders, hiring and prices paid all moved lower, falling from 58.2 to 55.5, from 55.5 to 52.3 and from 49.6 to 9.4, respectively.

Yet sub-indices tracking order backlogs, new export orders and imports improved, from 50.3 to 52.3, from 51.8 to 52.8 and from 53.8 to 55.3.

Both for the report's headline index as well as for the different subindices, the 50.0-point level marks the threshhold between successively higher rates of growth or contraction.

A gauge of output levels in manufacturing declined by 5.7 points, the largest drop from among all the main subindices, to reach 54.8, with another for inventory levels edging up by 0.6 points to 53.4.

Purchasing managers from the various sectors of US industry generally reported continued "strong" or steady growth in their markets, save in Plastics and Rubber Products.

Managers in Paper Products also reported "slow" export markets.

In a nutshell, said Pantheon Macroeconomics's chief US economist, Ian Shepherdson: "Terrible, and probably worse to come."

"The softness of the report is disappointing after the hefty rebounds in the Chicago PMI and Richmond Fed surveys, but none of the regional reports are consistently reliable guides to the national picture," he said.

"The bigger story here is that U.S. manufacturing is being pulled into the mire by the rollover in Chinese manufacturing, which is not over yet. The ISM is likely to fall further over the next couple of months, though we hope it will hit a clear bottom by late spring."

For his part, Jonathan Millar at Barclays Research said: "The US ISM manufacturing PMI composite index moved down somewhat in February but remained in a range consistent with moderate growth.

"[...] February's estimates continue to point to a moderation of cost pressures in the wake of net declines in the price of crude oil since October. The index for prices paid edged down 0.2pts to 49.4 in February, down from persistently elevated readings throughout much of 2017 and 2018. The latest reading places the index of prices paid at levels comparable with early 2016 - a period that coincided with subdued demand and slow growth in the US manufacturing sector."

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