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U.S. Manufacturing Index Shows Strong Growth in February

  • Manufacturing index reflects strongest activity in two years
  • Sixteen out of 18 manufacturing industries see growth in February
  • Sector continues to face certain headwinds, such as supply chain disruptions and challenges in finding qualified workers

Summary by Dirk Langeveld

A key index reflecting the health of the manufacturing sector showed strong growth in February, matching a two-year high and showing widespread gains in areas such as new orders, supplier deliveries, and employment. However, manufacturers also showed some anxiety in areas such as supply availability and prices.

The Institute for Supply Management’s Manufacturing PMI, or purchasing managers’ index, stood at 60.8 percent in February. This marked a 2.1 point gain from January and matched the index of February 2018, which was the highest level since 2004.

All of the individual indexes maintained by ISM showed growth with the exception of inventory and imports, which experienced small decreases. Sixteen of 18 manufacturing industries, including five out of six of the largest industries, saw growth in February; the only declines were in coal and petroleum products as well as printing products and related support activities.

One beneficial trend that has benefited the manufacturing sector is a shift in consumer spending habits, which has supported demand for various physical products. As the COVID-19 pandemic minimized opportunities for spending on travel, entertainment, and dining out, people instead turned to “pandemic projects” such as home renovations.

Manufacturers still face a variety of challenges, such as finding qualified workers, absenteeism, and short-term shutdowns to sanitize facilities. Some economists have also cautioned that higher producer prices that will likely be passed on to consumers, which could potentially exacerbate the risk of inflation as the Biden administration pursues large spending packages for COVID-19 relief and infrastructure improvements.

Supply chain disruptions and shortages in certain materials have also been an impediment for manufacturers, with a shortage in semiconductors causing slowdowns in auto manufacturing and other areas. The situation prompted President Joe Biden to issue an executive order for Cabinet officials to review American supply chains and present recommendations for making them more resilient.

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