U.S. production rebounded in January after a weak December, led by a sizable rise in new orders, the Institute for Supply Management (ISM) said today in releasing its monthly report on manufacturing activity.
In addition, in a sign of receding inflation at the raw materials level, the “Prices” index, one of the 10 indexes that comprise the report, dropped in January by 5.3 percentage points over December’s results. The January figures mark the first time in three years that raw materials prices were lower than in the month before.
The Purchasing Managers Index (PMI), a roll-up of the underlying indexes and the report’s headline number, rose 2.3 percentage points over December’s results to 56.6 percent, ISM said. The January PMI marked the 117th consecutive month of overall economic growth and 29th straight month of growth in the manufacturing sector. A monthly PMI reading above 42.9 percent signals expansion, according to the ISM methodology. The January data also represents a sharp turnaround from the December PMI reading, which plunged 5.2 percentage points over November’s results, the steepest sequential drop since October 2008.
The “New Orders” index, a leading indicator of shipping activity, jumped 6.9 percentage points over December, after falling more than 11 percentage points in December, ISM said. The “Production” index registered 60.5 percent, a 6.4-percentage point increase over December. The “Employment” index came in at 55.5 percent, down slightly from the December reading. The “Supplier Deliveries Index” registered 56.2 percent, a 2.8 percentage point decrease from the December reading of 59 percent. Supplier inventory levels rose, while end-customer inventory levels remained “too low,” and order backlogs were flat, the report said. The pace of export order growth fell sequentially, albeit slightly, for the first time in three years.
“Comments from the panel reflect continued expanding business strength, supported by strong demand and output,” said Timothy Fiore, who chairs the committee producing the report.
ISM blends the supplier deliveries, imports and inventories indices into what are known as “inputs.” While the input group showed sequential improvement, the results were negative relative to the expansion in PMI, ISM said. The input results reflect an overall easing in the business environment, a trend confirmed by the contraction in the “prices” index, ISM said.
The report surveys U.S. supply and purchasing professionals from 18 industries who in aggregate control about $1 trillion in annual spending. The report is closely watched because it provides as close to a real-time glimpse into buying activity and manager attitudes as is publicly available.
As it does with each monthly report, ISM embeds comments from respondents in the various industries. An executive in the transportation equipment sector said that business continues to be solid but that margins are being squeezed. A chemical products executive said recent declines in oil prices are promoting questions about overall economic strength in the first half of the year. A furniture executive said that although the pace of incoming orders is holding steady, the company is starting to see signs of slowing in February and March.
Ibrahiim Bayaan, FreightWaves’ chief economist, said the numbers were favorable, especially coming off the poor data in December. Employment numbers softened month-over-month to their lowest reading since last April. The January number was nonetheless respectable, and dovetails with modest manufacturing employment gains reported this morning in the U.S. Department of Labor’s January non-farm payrolls report, Bayaan said.
The economy created 304,000 jobs in January despite the effects of the partial government shutdown, according to Labor Department data. That exceeded even the most bullish estimates.