ISM Manufacturing Index falls to 48.3 in February, indicating contraction

The Institute for Supply Management Manufacturing Index for February 2008 fell to 48.3 from 50.7 in January 2008, the institute announced Monday.

Readings above 50 indicate economic growth; readings below 50, economic contraction. Economists surveyed by Bloomberg News had expected the index to drop to 48.1 in February 2008.

The index registered declines in 11 of 18 categories and hit a 5-year low. New orders decreased to 49.1 from 49.5; production dropped to 50.7 from 55.2; prices paid declined to 75.5 from 76; employment fell to 46 from 47.1, and supplier deliveries dropped to 50.1 from 52.8.

"The manufacturing sector failed to grow during the month as the PMI fell below 50%, which indicates weaker performance in February when compared to January," Norbert J. Ore, ISM chairman said, in a statement. "Manufacturers' order backlogs continue to erode as the New Orders Index remained below 50% for the third consecutive month." Ore added that with manufacturing inventories at reasonable levels, the primary concern is rising prices and falling volume.

Economic Analysis: A decidedly bearish data point for the U.S economy. Now below 50, the reading indicates a clear contraction, and a significant deceleration in the GDP growth rate. The U.S. economy is clearly feeling the impact of the housing / residential construction market's slowdown, as it ripples through the economy, lowering demand for furniture, appliances, building materials, and home supplies.