February PMI Indicates Strong Economy

“Production expansion continues, in spite of labor, capacity constraints and supplier delivery difficulties. Raw material inventories increased during the period. Production could not keep pace with new order input and customer inventory needs, resulting in higher backlogs,” said Timothy Fiore, chairman of the Institute for Supply Management Manufacturing Business Survey Committee.

Supplier deliveries were slower in February constraining production growth. The index increased 2 points to register 61.1 percent. Backlogs continued to pile up in February, increasing 3.6 percentage points to an index reading of 59.8 percent.

Raw material inventories grew last month in response to production demand. The inventories index increased 4.4 percentage points to 56.7 percent, the highest level since March 2010. Customer inventories were still too low in February with the index declining 1.9 points to 43.7 percent.

The strong backlog, low customer inventory levels and continued strong new order expansion indicates confidence the production requirements will remain strong through the quarter and into the second quarter, Fiore said.

The Prices Index registered 74.2 percent in February, a 1.5 percentage point increase from the January reading of 72.7 percent, indicating higher raw materials prices for the 24th consecutive month. The Business Survey Committee noted price increases continue in metals (all steels, steel scrap, steel components, aluminum and copper).

The new export orders index increased 3 percentage points, while the imports index gained 2.1 percentage points.

Survey respondent comments included:

• “Steel market is doing rather well. Everybody is out of what I need.” (Fabricated Metal Products)

• “It seems the tax break for business is making a difference. Customers are spending more for capital equipment.” (Machinery)

• “Labor market continues to be tight for supply chain talent in the Southern California area. Overall economy is strong.” (Transportation Equipment)

• “Hiring has picked up for direct-hire employees. Due to end-of-2017 performance and improvement in commodity price, there has been an increase in capital budget.” (Petroleum & Coal Products)

• “We expect to have a strong year in 2018. In expectation, we have added to our sales staff and plan on adding to our production staff.” (Miscellaneous Manufacturing)

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