PMI slows in February but is not at a recessionary level

The Institute for Supply Management issued their February 2008 Manufacturing ISM Report on Business today.

Comments from the respondents showed mixed assessments on the state of the economy :

• "Every year the Chinese New Year break has a bigger impact on January and February." (Machinery)
  


• "Business is good, but there is continued pressure on margins." (Primary Metals)
  


• "Industry appears to be recovering." (Transportation Equipment)
  


• "Plastic prices still on the rise." (Food, Beverage & Tobacco Products)
  


• "Business continues to be sluggish." (Furniture & Related Products)

PMI is the closest watched part of the report. PMI for February was at 48.3% down from January’s reading of 50.7%. A reading above 50 indicates that the manufacturing economy is generally expanding; below 50 indicates contraction. A PMI in excess of 41.1%, over a period of time, generally indicates an expansion of the overall economy. PMI usually reaches its lows during the second half of a recession and can drop rapidly. Per ISM, "If the PMI for February (48.3%) is annualized, it corresponds to a 2.3 percent increase in real GDP annually." PMI may be weakening, but it is not pointing towards a recession. PMI has dropped below 45 by the third month in 8 out of the last 10 recessions.

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