February Manufacturing Activity: More Growth

March 1, 2006 – The ISM diffusion index of U.S. manufacturing activity rose by 1.9 index points to 56.7 in February – signaling another month of strong manufacturing growth (Chart 1). This index has been roughly steady for the last six months, fluctuating in a relatively narrow range of about 3 index points (from just below 55 to 58).

Chart 1. The ISM diffusion index of U.S. manufacturing activity. January 1987 through February 2006.

The ISM production index rose by 0.8 index points to a robust 57.4 in February (Chart 2). At the same time, the new order index jumped by 3.9 index points to 61.9 – a good omen for future production growth.

Chart 2. The ISM diffusion indices of manufacturing production and new orders. January 1987 through February 2006.

The ISM input price index fell by 2.5 index points to 62.5 in February (Chart 3). This index has now fallen by a substantial 21.5 index points compared to its recent (hurricane-driven) peak of 84.0 in October. Nevertheless, its still-high February level remains a signal of unusually strong growth in manufacturers’ input prices. And, according to the ISM press release, “Prices, driven by volatility in energy markets, continue to be a major source of concern for ISM’s survey respondents.”

Chart 3. The ISM diffusion index of manufacturing input prices. January 1987 through February 2006.

The ISM employment index rose by 3.7 index points to 55.0 in February (Chart 4). This suggests that we might see some further growth in February manufacturing payrolls (coming next week, on Friday).

Chart 4. The ISM diffusion index of manufacturing employment and growth in manufacturing payrolls. January 1987 to date.

Suzanne Rizzo

Sources:

Institute for Supply Management (http://www.ism.ws) - the ISM diffusion index of U.S. manufacturing activity (also known as the Purchasing Managers’ Index, or PMI) and related information.
U.S. Department of Labor, Bureau of Labor Statistics (http://www.bls.gov) - manufacturing payroll employment.
National Bureau of Economic Research (http://www.nber.org) - recession dates.