Could the manufacturing and service sector be losing some confidence in the market? This February’s PMI might indicate the drop-in optimism that has been surging through the market since the November election. The Manufacturing Purchasers Managers’ Index (PMI) is a tool used specifically in the market to gauge the activity of the top 300 companies in the industry. This tool tells us how the decisions of purchasing executives and managers rolled out throughout the past month, comparing it to the previous month’s productivity and activity. It uses a reading of 50 to show there has been no change, while anything above 50 shows expansion and anything below 50 shows compression.
Compared to last month’s 55, February dropped .7 points to 54.3 disappointing the expectations held this year for a continual growth that has reigned since the election results last year. February’s PMI was predicted to raise 55.3, but as shown below, it did not reach this result.
So, what do these market indicators suggest? Producers may be a bit pessimistic about the upcoming year’s market productivity and be cutting back on costs to avoid blowback. Their precautionary actions could explain the unexpected loss in February. New order growth and production output showed only a minuscule increase in February while productions rates slowed down. The slowing down of domestic demand could indicate a general economic downturn that could have producers concerned.
This past month’s decrease of the PMI will potentially lead to a change in the industry’s decisions over the course of the next couple of months. Huge decisions on production, new order purchases, and raw material purchases could be affected this month. A lower PMI could also indicate a decrease in prices which leads to lower demand in parts purchasing.
No need to worry just yet. The general economic indicators are still showing continual growth as they have been for many months so far, and payroll in the manufacturing industry continues to increase.
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