February Institute for Supply Management

The Institute for Supply Management’s (ISM) surveys covering both sides of the economy improved in February.  The manufacturing survey moved to 54.2 from 53.1 in January.  The largest segment of the economy (services) saw the tally improve to 56 from 55.2 a month earlier.  Any reading above 50 for the two surveys implies economic growth for the respective segment of the economy.

The manufacturing survey improved for the third consecutive month.  A substantial improvement was seen in new orders.  This is known to be a leading indicator because unless the orders are cancelled, the future output will add to Gross Domestic Product (GDP).  Actual output grew in the month as well which bodes well for the first quarter GDP figure.  Exports grew faster than in January but imports grew more quickly which may put pressure on the country’s trade balance.  Manufacturing employers continued to hire but did so at a slower pace than the month before.

The larger portion of America’s economy is represented in the non-manufacturing ISM survey.  The service sector completed its 38th consecutive increase.  Businesses reported more activity in February over January and the rate of change was faster too.  Service companies also received more orders, and this grew faster than in January as well.  Non-manufacturing continued to hire, but the pace for payroll additions was slower.

Overall the ISM reports point to continued economic growth.  The dark lining to this silver cloud would be prices. Both sides of the economy reported faster increases in prices.  If companies cannot pass their higher costs on to the buyers of their wares and services, it will impact corporate America’s bottom line.  If they can pass the prices on, it means Americans will be paying more for the goods and services they consume.   (by C. Cox)