February Institute for Supply Management

Both sides of the economy expanded in the second month of the year according to data from the Institute for Supply Management (ISM). Manufacturing output expanded for the ninth month in a row, and accelerated to 53.2 from 51.3 in January. Non-manufacturing’s decelerated to 51.6 from 54.0 but has expanded for 55 consecutive months.

There may be signs of renewed acceleration in the months ahead as the winter’s impact on the economy fades. New manufacturing orders rose 3.3 percentage points to 54.5 over January’s reading. This leading indicator is encouraging because it suggests the economy’s recent sluggishness may be temporary. For instance, February’s production index fell to 48.2 suggesting a contraction in the period. This falling output will likely result in a weak first quarter GDP statistic, but the growing new orders may halt the slide.

Slower service side output will likely keep first quarter GDP growth subdued; however, February’s non-manufacturing deceleration may prove to be short-lived. New orders accelerated and will likely lead to additional output in the near future. Since services are the largest part of the economy, growing orders could cause the economy to reaccelerate in the months ahead.

Considering the ISM data, it appears the economy has been in a bit of a rut recently. Some of this slower output is attributable to the harsh winter that a large portion of the nation experienced. Exactly how much of the blame can be put on the season is not knowable, but as the country warms up, it seems reasonable to expect at least a mild lift from a calmer season known for its green shoots. (by C. Cox)