Manufacturing Economy Holds Steady in February 2020
There’s volatility in the manufacturing economy. Over the past six months, the Manufacturing ISM® Report On Business® has rocked up and down across the dividing line between economic expansion and contraction. Headlines claim manufacturing is in recession. Industry executives report business as usual, despite circumstantial headwinds. But what do the numbers of the February 2020 Manufacturing ISM® Report On Business® say?
Breaking down the report
Shooting back into expansion territory in January 2020 on the heels of a positive fourth quarter and holiday season, the manufacturing economy has managed to stay above board despite analyst predictions it would sink back into contraction. The overall PMI jumped from 47.8 to 50.9 in January and regressed just slightly to 50.1 in February 2020. Despite its proximity to the break-even point (50.0), the newest PMI reflects an overall win for manufacturing.
A deeper look into the figures hints at more turbulence. Wild swings across the full set of KPIs shows an industry that’s unsure of what it will face next. Prices fell by an astounding 7.4 basis points, alongside imports which shed 8.7 basis points, putting both metrics deep into contraction territory. In fact, most metrics in the report fell by some margin, including new orders (-2.2%), production (-4%), inventories (-2.3%), customers’ inventories (-2%), and new export orders (-2.1%).
Gains were minimal but meaningful. Manufacturer order backlogs gained 4.6 basis points, alongside supplier deliveries which rose 4.4 basis points. Combined, these figures show an economy that’s still producing to meet demand.
The impact of Coronavirus
2019 saw its fair share of economic uncertainty with trade wars and fluctuating materials prices. But these woes pale in comparison to the current danger to worldwide markets: Coronavirus. It’s the number one concern of industry executives, and its impact is crippling world markets quickly.
“Coronavirus continues to be front and center as a major supply chain risk to our company. Access to information in China — from our supply base and customers — is slow to come by.” (Fabricated Metal Products)
Originating in China, Coronavirus has managed to cripple global supply chains in less than 90 days. Entire factories in China have shut down. Borders throughout the world have closed or tamped down on ingress and egress, throttling trade. Domestic and foreign stock markets have sold off in levels dangerous close to crashes. These effects are felt around the world, and the worse may still be yet to come for the U.S. manufacturing economy.
China’s economy is responsible for roughly 16.3% of the global GDP; the U.S similarly represents about 15.2%. Should Coronavirus have a similar impact on the U.S., global recession is nearly inevitable. Consumers are already buying less, and now, manufacturers are taking defensive approaches to an uncertain second quarter.
Right now, the biggest detriment to the manufacturing economy is uncertainty — but that might be the only reason it remains above contraction territory. Manufacturing is bracing for impact. And while no one knows how bad it’ll be, the fact that Coronavirus is still picking up momentum is cause for serious concern.