US manufacturing contracted for a fourth straight month in February, but there were signs that factory activity was starting to stabilise, with a measure of new orders pulling back from more than a 2½ year low.

The Institute for Supply Management (ISM) said on Wednesday (Mar 1) that its manufacturing PMI was little changed at a reading of 47.7 last month from 47.4 in January. Economists polled by Reuters had forecast the index rising to 48.0.

A PMI reading below 50 indicates contraction in manufacturing, which accounts for 11.3 per cent of the US economy.

But the worst could be over for manufacturing. Factory production rebounded strongly in January, data from the Federal Reserve showed last month.

Orders for key manufactured capital goods rose by the most in five months in January while shipments of those so-called core goods rebounded, the Commerce Department reported on Monday. Spending on durable goods also bounced back in January.

With the Federal Reserve expected to keep hiking interest rates, a quick turnaround in manufacturing is, however, unlikely. Manufacturing is also being undermined by the dollar’s past appreciation against the currencies of the United States’ main trade partners and softening global demand.

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The ISM survey’s forward-looking new orders sub-index improved to 47.0 last month from 42.5 in January, which was the lowest reading since May 2020. There was also an improvement in order books, though the backlog of unfinished work remained low.

The survey’s measure of supplier deliveries was little changed at 45.2. A reading below 50 indicates faster deliveries to factories. Stretched supply chains early in the Covid-19 pandemic as millions of Americans worked from home was one of the major drivers of inflation last year.

Despite improving supply and softening demand, inflation flared up, with both consumer and producer prices logging big monthly gains in January.

Inflation could remain elevated for a while, with the ISM survey’s measure of prices paid by manufacturers rebounding to 51.3 in February from 44.5 in January.

Its gauge of factory employment fell to 49.1 from 50.6 in January. But this measure, which has swung up and down, has not been a good predictor of manufacturing payrolls in the government’s closely watched employment report. Factory payrolls have mostly grown at a solid clip. REUTERS