The February 2012 ISM Manufacturing Survey decreased by -1.7 percentage points to 52.4% PMI.
New Orders dropped, -2.7 percentage points to 54.9% with 10 industries reporting an increase in new orders and four, Nonmetallic Mineral Products; Furniture & Related Products; Printing & Related Support Activities; and Plastics & Rubber Products, reporting a new order decrease.
A New Orders Index above 52.1%, over time, is generally consistent with an increase in the Census Bureau's real series on manufacturing orders.
PMI is a composite index on manufacturing. Here's how the ISM defines PMI:
The PMI is a composite index based on the seasonally adjusted diffusion indexes for five of the indicators with equal weights: New Orders, Production, Employment, Supplier Deliveries and Inventories.
Below is the ISM table data, reprinted, for a quick view.
| Manufacturing at a Glance February 2012 | ||||||
|---|---|---|---|---|---|---|
| Index | February | January | % Point Chg. | Direction | Rate | Trend |
| PMI | 52.4 | 54.1 | -1.7 | Growing | Slower | 31 |
| New Orders | 54.9 | 57.6 | -2.7 | Growing | Slower | 34 |
| Production | 55.3 | 55.7 | -0.4 | Growing | Slower | 33 |
| Employment | 53.2 | 54.3 | -1.1 | Growing | Slower | 29 |
| Supplier Deliveries | 49.0 | 53.6 | -4.6 | Faster | From Slowing | 1 |
| Inventories | 49.5 | 49.5 | 0.0 | Contracting | Same | 5 |
| Customers' Inventories | 46.0 | 47.5 | -1.5 | Too Low | Faster | 3 |
| Prices | 61.5 | 55.5 | +6.0 | Increasing | Faster | 2 |
| Backlog of Orders | 52.0 | 52.5 | -0.5 | Growing | Slower | 2 |
| Exports | 59.5 | 55.0 | +4.5 | Growing | Faster | 4 |
| Imports | 54.0 | 52.5 | +1.5 | Growing | Faster | 3 |
| OVERALL ECONOMY | Growing | Slower | 33 | |||
| Manufacturing Sector | Growing | Slower | 31 | |||
Production, which is the current we're makin' stuff now meter, dropped again, -0.4 percentage points from last month to 55.3%. Production loosely correlates to the Federal Reserve's industrial production, where the February statistics will be out mid-month.
Now we come to employment, otherwise known as where are the damn jobs? The manufacturing ISM employment index dropped -1.1 percentage points to 53.2%. The neutral point for hiring vs. firing is 50.1%.
Below are the BLS manufacturing non-farm payrolls (jobs) for the past decade on the left, in red (February's numbers are out March 9th), graphed against the ISM manufacturing employment index on the right, in blue. The BLS number is simply raw manufacturing jobs tally, from the CES, not taking into account population growth or overall sector shrinkage as well as time lag. One can eyeball a slight correlation in the middle of the decade, yet note the divergence this recovery, starting late 2008.
Inventories has no change, the index is at 49.5%, and remain in contraction. The ISM claims:
An Inventories Index greater than 42.7 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).
Changes in all, not just manufacturing, private inventories added +1.88 percentage points, or 63%, of 2011 Q4's 3.0% GDP, and also increased 0.7% in January for durable goods. The ISM inventories are for February.
Supplier deliveries are how fast manufacturers can get their supplies. A value higher than 50 indicates slower delivery times, a value below 50 means the supply chain is speeding up. The index plunged -4.6 percentage points to 49.0% and the ISM reports this it the first month supplier deliveries have speed up.
The last time supplier deliveries registered below 50 percent was in May 2009, when the Supplier Deliveries Index also registered 49.9 percent. A reading above 50 percent indicates slower deliveries.
Backlog of orders decreased -0.5 percentage points to 52.0% and moved into expansion. Order backlogs are exactly what they sound like, how many new orders have delays in being filled.
Imports increased +1.5 percentage points to 54.0%. Imports are materials from other countries manufacturers use to make their products.
New orders destined for export, or for customers outside of the United States, increased +4.5 percentage point to 59.5%, a bright spot in a fairly flat line report.
Prices blew up another +6.0 percentage points to 61.5%. Prices are what manufacturers pay to make their products. Nonmetallic Mineral Products lead the industrial pack with increasing prices and Nonmetallic Mineral Products were also leading the charge in new order declines and second in slower production.
Customer's inventories decreased -1.5 percentage points to 46.0%. Below 50 means customer's inventories are considered by manufacturers to be too low. Customer inventories, not to be confused with manufacturer's inventories, is how much customers have on hand, or rates the level of inventories the organization's customers have. Guess who is at the head of the pack reporting customer's inventories are too low? Nonmetallic Mineral Products, it looks like they had a rough February.
Here is the ISM growth and contraction sector ordered list:
Of the 18 manufacturing industries, 11 are reporting growth in February, in the following order: Apparel, Leather & Allied Products; Machinery; Primary Metals; Transportation Equipment; Petroleum & Coal Products; Fabricated Metal Products; Paper Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Chemical Products. The four industries reporting contraction in February are: Furniture & Related Products; Nonmetallic Mineral Products; Plastics & Rubber Products; and Electrical Equipment, Appliances & Components.
U.S. manufacturing PMI is bucking the European trend, slightly. Germany's manufacturing PMI 50.2%. China's PMI was 51.0% in February.
The ISM has a correlation formula to annualized real GDP, but they are now noting the past correlation. Notice also that the PMI went to equal weighting in 2008. Annualizing January's data, the ISM get a 3.3% 2012 annual real GDP. The below graph plots real GDP, left scale, against PMI, right scale. One needs to look at the pattern of the two lines to get anything out of this graph. If they match, GDP goes up, PMI goes up, would imply correlation.
The past relationship between the PMI and the overall economy indicates that the average PMI for January and February (53.3 percent) corresponds to a 3.6 percent increase in real gross domestic product (GDP). In addition, if the PMI for February (52.4 percent) is annualized, it corresponds to a 3.3 percent increase in real GDP annually.
The ISM neutral point is 50, generally. Above is growth, below is contraction, There is some some variance in the individual indexes and their actual inflection points. For example, A PMI above 42, over time, also indicates growth.
Here is last month's manufacturing ISM overview, unrevised.
The ISM has much more data, tables and analysis on their website. For more graphs, see St. Louis Federal Reserve Fred database and graphing system.
Oh yeah, PMI stands for purchasing manager's index.
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