by Cara Eisenpress
U.S. manufacturing activity slowed in February, but exports and motor vehicle factories continued to support modest but steady growth, according to economists.
The Institute of Supply Management’s Purchasing Managers Index fell from 54.1 to 52.4, two points lower than the 54.5 average prediction of economists surveyed by Bloomberg. Any figure above 50 signals growth in the economy. Purchasing managers said that consumer demand and new orders stayed steady – both auspicious signs for the manufacturing sector.
Despite those positive predictions, the price of all raw materials except natural gas climbed in February, a limit on the sector’s strength.
Economists had expected the gains in manufacturing to reflect the modest growth in the overall economy, and both production and new orders did align with such forecasts, hovering near 55. Like new orders, production is a leading indicator and its rise bodes well for the March numbers. The ISM survey has been reporting expansion since August 2009.
The report showed exports were a major component of growth; they rose by four and a half percentage points since January. Because policymakers have bailed out Greece from its debt crisis, Europe is stable, at leat for the moment. That means factories can rely on exports to mediate the risk of rising raw material prices, said Joseph Lavorgna, chief U.S. economist at Deutsche Bank.
“I don’t think Europe is going to flare up in any meaningful way anytime soon,” said Lavorgna.
Despite the surge in exports, gas prices are still a concern, said Peter D’Antonio, an economist at Citigroup. Prices are heading upwards already, months before the summer months increase how much Americans drive, and how much they pay for gas.
In early 2011 and early 2010, exceptional acceleration in the manufacturing industry obscured the state of the economy, which then slowed in 2010 and stalled in 2011, the latter because global events like the Japanese earthquake disrupted the supply chain. This year’s smaller uptick in manufacturing numbers more accurately represents a recovering economy with moderate, economists said.
In addition to exports, the American automobile industry drove the upturn in U.S. manufacturing activity, according to Steven Ricchiuto, chief economist at Mizuho Securities.
His claim echoed the latest Federal Reserve report on industry production in January, which showed motor vehicles and parts jumping 6.8 percent, compared to 0.3 percent growth for other manufacturing industries. February motor vehicle sales were at 1.1 million, up 15.7% over February 2011, according to Autodata.
But autos in turn are aided by growth in other areas.
“Given the broad-based nature of the gains of the regional PMIs, the manufacturing sector is doing well,” said Lavorgna. “And it’s not a one-industry phenomenon.”
It was the rise in regional factory numbers in cities such as Chicago, which has benefitted a great deal from the auto manufacturing recovery, that led many economists to overshoot their predictions for this month’s ISM index.