Growth in the manufacturing sector of the US slowed last month after the sector showed gains the past three consecutive months. This is yet another sign of a slow economic recovery that is in a fragile state. The ISM index which is used to measure manufacturing growth, edged lower to 52.4 from 54.1 the month previous. Economists polled by Reuters were looking for 54.5.
The unflattering data made stocks backtrack, along with the dollar. US Treasury bonds rose on the news as investors turn to a safer investment during a fragile time in our economic recovery. The fall in the ISM came as a shock to investors. The day before the Chicago PMI Index, which measures manufacturing growth in the Midwest, rose to a 10 month high in February.
Analysts are blaming higher energy and commodity prices for the decrease in the ISM as buyers had to pay more for goods. This unfortunate news comes only weeks before the important non-farm payroll information which is expected to tell us that 200,000 jobs were added in February. However, the ISM showed us in its employment section that we may not be getting 200,000 new jobs. The employment section of the ISM fell to 54.3 in February from 54.3 from January. Despite this, claims for unemployment benefits were lower than expected last week which is now at four year lows. This gives investors slight hope that there may be an increase in jobs after all.
The economic recovery is in a fragile, choppy state that is really taking its toll on investors. One month things go great, then the next month we find out things haven’t been as rosy as we previously thought. Jobs appear to be gaining momentum however, which is a great sign for the economy overall. Consumer confidence was up earlier this week which means consumers are feeling better about the economy and will be more likely to spend money on big items such as cars, which have been increasing sales over the past three years. On the flip side, this ISM report showed us that there are still some holes in the recovery. In addition, rising oil could hit our economy hard, especially if it reaches the levels that analysts are predicting. Alas, that is yet to be seen and luckily consumers do not seem to be derailed by the raising oil. Overall, the economy is recovering but it is sure taking its sweet ol’ time getting there.