Manufacturing Index Reading Lowest In Three Years

Weak orders and a drop in selling prices are among the striking negatives in the February flash PMI which, at 51.0, is still in the plus-50 expansion column but only barely. This is the lowest reading in three years and is below Econoday's low estimate.

Production is slowing and growth in new orders and employment have only been marginal so far this month. And, in a special negative that points to more trouble ahead for employment, backlog orders are contracting at the steepest pace since September 2009. Respondents are blaming lack of demand for the trouble, specifically delays in customer spending. The report says weather is not a factor in the readings.

Export sales are down the most since April last year, the result respondents say of the drop in the dollar and less favorable global economic conditions. Input buying is down, inventories of finished goods are up, and supplier deliveries are shortening, all indications of weak conditions.

Turning finally to prices, costs are down and price discounting is up with prices for finished goods dropping at the fastest rate since June 2012. This is a broadly negative report and, together with February's Empire State and Philly Fed reports, do not point to an extension of the strength seen in last week's manufacturing component of the January industrial production report.

Recent History Of This Indicator:
The February manufacturing PMI flash is expected to hold steady, at a consensus 52.5 vs a final January reading of 52.4 and a January flash of 52.7. Back in January, new orders, boosted by domestic demand, picked up steam as did production and selling prices. But employment slowed while inventories fell slightly, both signs of weakness. Note that this report runs hot compared to other manufacturing reports.