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Economic Watch: Factory Activity Increases in February

U.S. manufacturing business conditions continue to show sustained improvement, hitting their fastest pace in four months after registering the slowest pace in a year during January.

The preliminary U.S. Manufacturing Purchasing Managers’ Index from financial information services company Markit increased this month to 54.3 from January’s reading of 53.9. This latest reading is the highest since November but weaker than the average of 55.9 for last year as a whole.

Slower rates of new business and employment growth were the main factors weighing on the headline index in February, according to Markit.

A reading above 50 generally indicates growth while one below this level is a sign of contraction.

“Factory output growth ticked higher for a second successive month in February, suggesting the goods-producing sector is on course to make a robust contribution to the economy in the first quarter,” said Chris Williamson, chief economist at Markit. “The production upturn occurred despite widespread delivery delays caused by heavy snowfall and port strikes, which may have also been a factor behind the near-stagnation of exports, suggesting the underlying picture may have been one of slightly stronger growth.”

He pointed out the rate of growth remains down from last year’s peaks, and a slowing of new orders growth in just over a year looks to have caused employers to take a more cautious approach to hiring.

“The survey therefore adds to the sense that, while still expanding at a solid pace, the U.S. economy has entered a slower growth phase,” Williamson said. “Policymakers, juggling with the decision as to when the economy can start to withstand higher interest rates, will at least be reassured that lower manufacturing costs, now falling at the fastest rate since mid-2012, should help drive inflation down further in coming months and allow policy to be kept looser for longer if needed.”

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