Reports from the Institute for Supply Management found the US manufacturing sector contracted in February, but economic activity in the US services sector increased.

Manufacturing PMI 

Economic activity in the US manufacturing sector contracted in February for the fourth consecutive month, according to the Institute for Supply Management’s Manufacturing ISM Report on Business.

The Manufacturing PMI improved marginally and registered a reading of 47.7% in February, 0.3 of a percentage point higher than January's reading of 47.4%.

The reading indicates the economy as a whole has contracted for the third month after a 30-month period of expansion. Manufacturing PMI readings above 50% indicate the manufacturing economy is expanding.

ISM noted the Manufacturing PMI has been at its lowest levels since May 2020.

“The US manufacturing sector again contracted, with the Manufacturing PMI improving marginally over the previous month,” said Timothy Fiore, chair of the Institute for Supply Management Manufacturing Business Survey Committee.

“With Business Survey Committee panelists reporting softening new order rates over the previous nine months, the February composite index reading reflects companies continuing to slow outputs to better match demand for the first half of 2023 and prepare for growth in the second half of the year.”

In addition, the employment index fell to a reading of 49.1% in February from 50.6% in January. It indicates employment contracted after weak expansion in the previous two months and contraction in the three months before.

Fiore noted that although optimism for the second half of the year is slightly lower than in January, panelists’ companies continue to indicate that they will not substantially reduce head count.

The Manufacturing PMI is based on data compiled from purchasing and supply executives across the US.

Services PMI 

Economic activity in the US services sector expanded in February but at a slightly slower pace than January, according to the Institute of Supply Management’s Services PMI report. The Services PMI fell to a reading of 55.1% in February from 55.2% in January. The report is based on data compiled from purchasing and supply executives across the US.

February’s reading indicates the economy as a whole is growing for the second consecutive month after one month of contraction in December. Readings above 49.9% in the Services PMI over time generally indicate an expansion of the overall economy.

“The Services PMI, by being above 50% for a second month after a single month of contraction and a prior 30-month period of expansion, continues to indicate sustained growth for the sector,” said Anthony Nieves, chair of the ISM’s Services Business Survey Committee.

“Business Survey Committee respondents indicated that they are mostly positive about business conditions,” Nieves said. “Suppliers continue to improve their capacity and logistics, as evidenced by faster deliveries. The employment picture has improved for some industries, despite the tight labor market. Several industries reported continued downsizing.”

Employment was a bright spot, as the employment measure of the index rose in February to a reading of 54% after an unchanged reading of 50% in January.

Comments from survey respondents in the report include “Increase in applications resulting in more new hires” and “Level of employment higher to backfill positions in support of workloads.”