U.S. manufacturing gained strength in February; new orders, backlogs surge; end inventory levels still low

U.S. manufacturing activity powered strongly ahead in February, with a monthly index of the nation's purchasing managers rising to its highest level since December 2014 and orders increasing at the fastest pace in four years, the Institute for Supply Management (ISM) said today in its monthly report on manufacturing.

The Purchasing Managers Index (PMI) rose to 57.7 percent last month, up from 56 percent in January, ISM said. The 10 gauges that comprise the PMI also showed growth. Of note for those in the business of moving goods, new orders jumped by more than 4 percentage points, while order backlogs increased 7.5 percentage points. Equally important, customer inventories remained too low last month, while supplier inventories rose.

Trucking executives have blamed part of the industry's malaise during the past 18 months on elevated inventory levels, calling it a signal that companies had enough product on hand and didn't see an urgent need to replenish their warehouses or shelves. However, economists at the American Trucking Associations (ATA) have noticed a possible turn in the cycle, as inventories may have been sufficiently pared back to allow end customers to resume normal ordering patterns.

ATA said last week that its seasonally adjusted tonnage index rose 2.9 percent in January, following a 4.3-percent decrease in December. The January gain could have been sparked by a large drop in December's inventory-to-sales ratio, the measure of inventory levels across the supply chain, to its lowest level in two years, ATA said.

Bradley J. Holcomb, who oversees the ISM manufacturing survey, said in a statement that the February data, combined with positive anecdotal comments from purchasing managers, "largely indicate strong sales and demand, and reflect a positive view of business conditions with a watchful eye on commodities and the potential for inflation." Indeed, the "prices" index, which measures inflation, reported higher raw materials prices for the 12th consecutive month.

All told, the February ISM data showed that the U.S. economy had expanded for the 93rd consecutive month.

The strong numbers helped trigger strong gains in U.S. equity indices, with the Standard & Poor's 500 index today hitting a record closing high of $2,396 and touching the $2,400 level on an intraday basis.