The Milwaukee-area PMI jumped into positive territory for the first time in months in January, but the good news was short lived as the index returned to below 50 in February as the spread of coronavirus hit supply chains.
The index, part of the Marquette-ISM Report on Manufacturing, registered 49.41 in February. Any reading above 50 indicates growth in the manufacturing sector while those below suggest the industry is contracting.
In the last year, the index has been below 50 in eight of 12 months, including a six-month stretch from July to December as manufacturers battled trade uncertainty and an economic slowdown in Europe and China.
With a phase one trade deal signed between the U.S. and China in December, the manufacturing sector looked to rebound with more certainty in place. But the spread of the coronavirus starting around the Chinese New Year impacted operations, according to the latest Marquette-ISM survey.
The supplier deliveries component of the index moved from 62 to 68, suggesting slower deliveries, and imports also dropped from 50 to 45.
Respondent comments pointed to the coronavirus as one of the issues hurting the sector during the month.
“The (coronavirus) has led to major supply chain issues and delayed shipments of materials. This has led to customers reducing orders in anticipation of shortages,” on respondent said.
New orders dropped from 45.3 to 39.6 and production dropped from 57.8 to 45.3.
Respondents also pointed to broader issues for manufacturing.
“In the long term, economic issues in the United States are negatively affecting new orders,” one respondent said.
“Currently in the deepest part of the economic decline in manufacturing, with oil and gas declining the most,” another said.
Despite the negative comments, respondents were generally optimistic for the future and the report’s six-month business outlook remained relatively steady. In February, 41.2% of respondents expect things to improve, compared to 37.5% in January. The number of respondents expecting things to get worse also increased from 12.5% to 17.7%. The resulting diffusion index, which seeks t balance positive and negative bias, was 61.8%, down slightly from 62.5% in January.