U.S. Manufacturing Activity Unexpectedly Contracts At Faster Rate In February

Manufacturing activity in the U.S. unexpectedly contracted at an accelerated rate in the month of February, according to a report released by the Institute for Supply Management on Friday.

The ISM said its manufacturing PMI dipped to 47.8 in February from 49.1 in January, with a reading below 50 indicating contraction. Economists had expected the index to inch up to 49.5.

The unexpected decrease by the headline index partly reflected a downturn by new orders, as the new orders index slid to 49.2 in February from 52.5 in January.

The production index also fell to 48.4 in February from 50.4 in January, indicating production contracted after seeing modest growth in the previous month.

The report also showed employment in the manufacturing sector contracted at an accelerated rate, with the employment index slipping to 45.9 in February from 47.1 in January.

“Demand is at the early stages of recovery, and production execution is relatively stable compared to January, as panelists’ companies begin to prepare for expansion,” said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.

He added, “Suppliers continue to have capacity but are showing signs of struggling, due in part to their raw material supply chains.”

On the inflation front, the ISM said the prices index edged down to 52.5 in February from 52.9 in January, suggesting modestly slower price growth.

The ISM is scheduled to release a separate report next Tuesday on activity in the U.S. service sector in the month of February.

The services PMI is currently expected to dip to 52.5 in February after climbing to 53.4 in January, although a reading above 50 would still indicate growth.