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US Factory Gauge Falls to Two-Year Low as Orders Cool

A gauge of U.S. factories fell to a two-year low, cooling more than expected with a broad decline that suggests economic growth is moderating, though the drop may reflect some weather-related disruptions.

The Institute for Supply Management index fell to 54.2 from 56.6 as four of the five main components—orders, employment, production and deliveries—all saw declines. The result missed estimates in a Bloomberg survey calling for a drop to 55.8, though remained above the 50 level that indicates expansion.

Key insights

The factory gauge, which extended declines from a 14-year high just six months earlier, adds to signals the economy may be poised to lose momentum this year amid slower global growth. It also contrasts with Thursday’s report showing strength in business investment helped push fourth-quarter economic growth to a faster-than-expected 2.6 percent pace. While recent reports have fueled concern about the toll the trade war with China is taking on economic growth, the ISM’s export orders reading rose from a two-year low and the measure of imports increased to an eight-month high. Manufacturers’ inventories saw the lone gain among index components while the gauge of customer inventories fell to an eight-year low, a potential positive sign for future production growth. Sixteen of 18 manufacturing industries reported growth, the most in six months, with the nonmetallic mineral products industry reporting the lone contraction, ISM said.

Official’s view

Unusually cold weather forced some factories to close for several days and disrupted supply chains, Timothy Fiore, chairman of the ISM survey committee, said on a conference call with reporters. “I’m not that surprised that the production number came down to the extent that it did,” he said, predicting a rebound in March.

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An index of prices paid fell to a three-year low of 49.4 and remained below 50 for a second-straight month, indicating that raw materials prices were lower for the second straight month after nearly three years of increases. The employment gauge fell to 53.3, the lowest in more than two years and the third straight decline, ahead of February jobs figures due March 8 from the Labor Department. An index of supplier deliveries fell a fourth month to the lowest level since May 2017, indicating bottlenecks are easing. At the same time, a measure of order backlogs rose the most in six months. The ISM manufacturing gauge has held above the 50 line that divides expansion and contraction since August 2016.