Economic activity in the manufacturing sector expanded in January for the first time in 12 months, preceded by 26 straight months of contraction, according to the Institute for Supply Management’s (ISM) latest ISM Manufacturing PMI report.
The report was issued by Susan Spence, MBA, chair of the ISM manufacturing business survey committee.
“The Manufacturing PMI registered 52.6% in January, a 4.7-percentage point increase compared to the seasonally adjusted reading of 47.9% in December. The overall economy continued in expansion for the 15th month. (A Manufacturing PMI above 47.5%, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index expanded for the first time since August, with a reading of 57.1%, up 9.7 percentage points over December’s seasonally adjusted figure of 47.4% and its highest since February 2022 (59.7%). The January reading of the Production Index (55.9%) is 5.2 percentage points higher than December’s seasonally adjusted figure of 50.7% and the highest since it reached 58.1% in February 2022. The Prices Index remained in expansion (or ‘increasing’ territory), registering 59%, 0.5 percentage point higher than December’s reading of 58.5%. The Backlog of Orders Index registered 51.6%, up 5.8 percentage points compared to the 45.8% recorded in December and the highest reading since August 2022 (53%). The Employment Index registered 48.1%, up 3.3 percentage points from December’s seasonally adjusted figure of 44.8%,” Spence said.
“The Supplier Deliveries Index indicated a further slowdown in performance for the second month in a row after one month in ‘faster’ territory. The reading of 54.4% is up 3.6 percentage points from the 50.8% recorded in December. (Supplier Deliveries is the only ISM PMI Reports index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Inventories Index registered 47.6%, up 1.9 percentage points compared to December’s seasonally adjusted reading of 45.7%. The Customers’ Inventories Index reading of 38.7% is a 4.6-percentage point decrease compared to December and the lowest since it registered 35.2% in June 2022,” Spence added.
“The New Export Orders Index reading of 50.2% is 3.4 percentage points higher than the reading of 46.8% registered in December. The Imports Index registered 50.0%, 5.4 percentage points higher than December’s reading of 44.6%,” Spence continued. “In January, U.S. manufacturing activity returned to expansion territory, with improvements in all five subindexes that make up the PMI (New Orders, Production, Employment, Supplier Deliveries, and Inventories), though the Employment and Inventories indexes still remain in contraction.”
Spence added, “Three demand indicators (the New Orders, Backlog of Orders and New Export Orders indexes) are in expansion, and the Customers’ Inventories Index remains in ‘too low’ territory, contracting at a faster rate. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production. Although these are positive signs for the start of the year, they are tempered by commentary citing that January is a reorder month after the holidays, and some buying appears to be to get ahead of expected price increases due to ongoing tariff issues. Regarding output, the Production Index is in expansion for the third month in a row, and the Employment Index, though still in contraction, saw a 3.3-percentage point improvement. However, 66% of panelists still indicate that managing head counts is the norm at their companies as opposed to hiring. Finally, inputs (defined as supplier deliveries, inventories, prices and imports) were mixed, with the Supplier Deliveries Index indicating slower deliveries, the Inventories Index remaining in contraction and the Prices Index continuing to rise.”
Spence concluded, “Looking at the manufacturing economy, 20% of the sector’s gross domestic product (GDP) contracted in January, compared to 85% in December, and the percentage of manufacturing GDP in strong contraction (defined as a composite PMI of 45% or lower) decreased to 12%, compared to 43% in December. The share of sector GDP with a PMI at or below 45% is a good metric to gauge overall manufacturing weakness. Of the six largest manufacturing industries, five (Transportation Equipment; Machinery; Chemical Products; Food, Beverage and Tobacco Products; and Computer and Electronic Products) expanded in January.”
The nine manufacturing industries reporting growth in January — listed in order — are:
- Printing and Related Support Activities
- Apparel, Leather and Allied Products
- Fabricated Metal Products
- Primary Metals
- Transportation Equipment
- Machinery
- Chemical Products
- Food, Beverage and Tobacco Products
- Computer and Electronic Products
The eight industries reporting contraction in January — in the following order — are:
- Textile Mills
- Wood Products
- Nonmetallic Mineral Products
- Electrical Equipment, Appliances and Components
- Petroleum and Coal Products
- Plastics and Rubber Products
- Furniture and Related Products
- Miscellaneous Manufacturing
