US Manufacturing slumps to a five year low as ISM slides to 48.3 in February

Manufacturing activity across the US weakened to a five year low as the US ISM manufacturing breached the 50 threshold in February falling to 48.3 from 50.7 in the previous month. The February reading, which came in slightly below consensus expectations of 49, further aggravates recessionary concerns in the US economy. A reading below 50 signals contraction, while any reading above 50 signals expansion. Digging deeper into the data, the major components new orders and production have also registered a decline with the new orders index continuing to remain in the contraction territory, dropping further to 49.1 from 49.5 in January while the production component of the index edged down, although still above the expansion threshold. (50.7 from 55.2 previously). This underlined the ongoing weakness in capital spending, previously reflected in the January durable goods orders release, which depicted a 5.3% MoM decline in new orders. Inventory liquidation continued for the 22nd consecutive month as anufacturer’s inventories contracted again in February with the Inventories index falling to 45.4 as compared to 49.1 in the previous month. Labor market conditions in the manufacturing sector continued to remain iffy as reflected by the manufacturing employment index, which fell to 46 from 47.1 in January. Meanwhile, inflation concerns remained anchored with the prices paid index still at elevated levels, despite edging down to 75.5 from 76 previously. Historically, ISM has been a reliable predictor of US recessions and the current slump in US manufacturing
has added onto concerns about an impending US hard landing. A slowdown in manufacturing may also end up decelerating trade improvement, a significant factor to support growth during such distressed times. Recent speeches by top Fed officials coupled with the dismal nature of economic and financial news over the past fortnight strongly suggests that the Fed officials are prepared to ease interest rates further in order to stave off a possible recession in the U.S.