Manufacturing in U.S. Expands at Fastest Pace Since May 2004

(Bloomberg) -- U.S. factories expanded in February at the fastest rate since May 2004, indicating sustained strength in manufacturing as demand remains solid, figures from the Institute for Supply Management showed Thursday.

Highlights of ISM Manufacturing (February)
Factory index climbed to 60.8 (est. 58.7) from 59.1 in prior month; readings above 50 indicate expansion Employment gauge jumped to a four-month high of 59.7 from 54.2 Measure of new orders eased to 64.2 from 65.4; order backlogs climbed to 59.8 from 56.2 Prices-paid index rose to 74.2, the highest since May 2011, from 72.7

Key Takeaways

The latest advance extends a series of healthy readings in the survey-based measure of manufacturing that's being fueled by improving global economies and firm business investment. It also comes on the heels of a late-year pickup in consumer spending, which advanced in the fourth quarter at the fastest pace in more than a year.

The purchasing managers group's gauge of export orders was the strongest since April 2011. While orders and production were a touch weaker in February than the prior month, the readings are nonetheless robust.

The report showed factories are having some difficulty keeping up with demand. The ISM's index of order backlogs climbed to a more than 13-year high. Delivery times also lengthened in February, with a measure reaching the second-highest level since 2010. That may help explain the rise in the group's gauge of manufacturing employment, which posted its largest month-over-month gain in more than two years.

“All indications are that demand will continue to grow,” Timothy Fiore, chairman of ISM's factory survey committee, said on a conference call with reporters. “There are a number of issues going on here in the supply chain that's pushing things up. The net result is there are problems in inventories, which are growing."

In addition to firmer overseas and domestic sales, corporate optimism is getting a lift from the recent tax-cut law and reduced regulation.

The ISM report showed 15 of 18 manufacturing industries indicated growth last month, led by printing, primary metals and machinery.

What ISM Respondents Said CapEx purchase deliveries are moving out globally.  -- Chemical products Availability of electronic components, long lead times, allocations and constraints continue to wreak havoc in the purchasing cycle, with no end in sight at this time.  -- Computer and electronic products Employment is one of our biggest challenges. No labor available.  -- Food, beverages and tobacco It seems the tax break for business is making a difference. Customers are spending more for capital equipment.  -- Machinery Business is very strong, and our lines are running at full capacity.  -- Plastics, rubber products

Other Details

• Production index dropped to 62 in February from 64.5
• Measure of export orders jumped to 62.8 from 59.8; marked fourth straight advance, the longest such stretch in six years
• Index of customer inventories fell to 43.7 from 45.6, indicating stockpiles were being depleted at a faster rate
• Factory inventories gauge rose to 56.7 from 52.3
• Gauges of supplier deliveries climbed to 61.1 from 59.1

--With assistance from Kristy Scheuble

To contact the reporter on this story: Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net.

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle

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