The manufacturing sector managed to expand at a faster-than-expected pace last month even though factory production dropped.
The manufacturing index released Monday by the Institute for Supply Management rose to 53.2 percent from a disappointing eight-month low of 51.3 percent in January, higher than most forecasts in a Bloomberg survey of economists. An index reading over 50 indicates growth, while a reading below 50 means contraction.
The forward-looking new orders index increased 3.3 points from last month, showing that manufacturers had confidence in higher future demand. The backlog of orders index climbed to 52 from 48 percent, while inventory rose 8.5 percent, from 44 to 52.5 percent. Manufacturing employment was steady at 52.3 percent.
Although the overall index was still well below the 56.5 percent figure in December, economists expect growth to pick up soon.
“It is pretty encouraging,” said Thomas Simons, an economist at Jefferies & Co. “I’m looking for, over the next six months, that the index is going to continue to accelerate.”
Although most industries posted growth, some recovered better than others. While manufacturers of computer and electronic products, machinery and transportation equipment reported expansion, industries such as apparel and petroleum and coal products were still suffering contraction.
Frigid and snowy weather disrupted manufacturing production significantly. The production index decreased 6.6 points to 48.2 percent, the lowest reading since May 2009, when the recession was about to end. In addition to poor weather conditions, the 13.2 percent drop in new orders last month was another likely reason for the dramatic decrease. However, economists remain optimistic that as the weather improves, so will the manufacturing picture.
“Weather is still a factor,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank. “The drop in production is very unusual, but to me, it’s still weather-impacted. By the spring, we’ll see a much stronger catch-up.”
Weather has been blamed for many recent reports that have shown a mixed view of the current state of the economy. Retail sales and home prices dropped, and the last two jobs reports were disappointing. But there were signs of improvement in other reports on Monday. Consumer spending rose more than expected, and construction spending increased slightly in January despite cold weather.
The stock market did not respond to the moderately better numbers, as escalating tensions from the crisis in Ukraine are worrying investors around the world. The Dow Jones industrial average dropped 153.68 points to 16,168.03. The Nasdaq was down 30.82 points to 4,277.3, and the S&P 500 index fell 13.72 points to 1,845.73.