Despite blizzards, ice storms and floods, U.S. manufacturing conditions improved significantly in February, bringing relief after a surprise slowing in January, according to a widely watched report Monday from the Institute for Supply Management (ISM).
The weather-weary Midwest bucked the national trend, however, with a slight slowdown in growth.
The ISM found that, nationwide, new factory orders, deliveries and inventories improved during February to create an overall index of 53.2, up from 51.3 in January. Any index figure over 50 signals economic growth, while below 50 signals contraction. Fourteen of 18 manufacturing industries reported growth, with textiles, wood, machinery, printing, plastics and transportation equipment leading the pack.
In the Midwest, a separate business condition report by Creighton University found that factories in the middle of the country continued to grow but more slowly. The university’s index slipped to 57.4 in February from 57.7 in January. The report, which tracks Minnesota and eight other central states, showed a slight decline due to a barrage of snowstorms and frigid weather.
“Almost one-third or 32.4 percent [of Midwest factory managers surveyed] indicated that recent extreme weather had a negative impact on company sales. Only 5.4 percent reported positive impacts,” said Ernie Goss, Creighton economist and author of the report. “But despite the negative fallout from severe weather, [manufacturing] supply managers … reported healthy business activity for the first two months of 2014.”
Todd Hedtke, vice president of investment management for Allianz Life Insurance Co., said both reports were positive in tone, noting they “were above overall expectations by a whole point.” He added, “Given the challenges in front of us, particularly with the weather, this is good news.”
Hedtke added that the discrepancy seen between February’s growth for national manufacturers and the tiny slippage seen in mid-America factories had to do with how record-breaking frigid weather clobbered activity.
“We felt it very close to home here with the terrible temperatures. In the Midwest, the weather is more extreme,” Hedtke said, adding that the region was hurt as employees struggled to get to work and raw materials had trouble reaching factories.
Minnesota factories bucked the weather blues, posting an overall index of 63.3, up from 57.7 in January.
Medical equipment makers, machine shops and other durable goods producers saw sales surge in February, which “more than offset pullbacks from food processors,” Goss said.
In Minnesota, companies continued to benefit from the use of temporary labor, and posted solid indexes for new orders, production, delivery lead time and inventories.
Hedtke noted that factories are building up inventories with the idea that spring’s warmer weather will ramp up business even more.
“That optimism is starting to filter,” he said.
Factories will be keeping an eye open for possible inflation worries, Hedtke said. For the central states, which include Minnesota, North Dakota, South Dakota, Nebraska, Arkansas, Iowa, Missouri and Kansas and Oklahoma, the February wholesale index rose to 75.7 from 71.6 in January.
“Wholesale prices for the region rose to the highest level in two years,” Hedtke said. “The question is, is that translating into inflationary pressures?”