3/3/2014

Matt MacVey

Despite harsh winter weather, U.S. manufacturing demand picked up steam last month after a significant slowdown of growth in January. This acceleration bodes well for economic growth as spring weather arrives.

The Institute for Supply Management’s manufacturing index increased to 53.2, beating the median estimate of 52.3 from Bloomberg’s survey of economists. Rising orders and inventory levels show that demand for manufactured goods has increased.

The manufacturing sector has grown for nine months in a row and seems to tipping back towards the strong performance we saw August through December of 2013. The entire economy relies on manufactured goods, so more manufacturing activity means that the wider economy is growing.

“Combined with better housing starts and auto sales, the ISM index suggests better economic growth in 2014,” said John Silva, Chief Economist of Wells Fargo.

Weather slowed factories and pushed the production component of the manufacturing index into contraction, but a turnaround in the numbers for inventories and backlog of orders kept the total index growing.

New orders, which slowed in January and drove last months overall manufacturing slow down, quickened to 54.5 in February.

Supplier deliveries rose to 58.5 signaling that delivery times were slowing, usually a positive sign that factory orders are coming in at a faster pace than manufacturers can keep up with. However, Lou Crandall, Chief Economist of Wrightson ICAP said that bad weather led to supplier disruptions and could be artificially increasing this indicator.

Looking at specific industries that drive manufacturing, petroleum drilling and the mining industry were both hit by the weather, but construction was surprisingly resilient. The rise in construction was corroborated by today’s Commerce Department release that shows 0.1 percent growth in construction spending for January.

Manufacturing employment numbers grew at the same rate last month as in January, in line with job growth estimates of 200,000 for this Friday’s payroll report.

Despite the positive news from the manufacturing sector the Standard & Poor’s 500 Index fell in value by 0.72% as investors sold off stock in response to instability in the Crimean Peninsula.