Economic activity in the manufacturing sector grew in January, with the overall economy notching an eighth consecutive month of growth, according to the latest Manufacturing ISM Report on Business from the Institute for Supply Management.

“The January Manufacturing PMI registered 58.7%, down 1.8 percentage points from the seasonally adjusted December reading of 60.5%. This figure indicates expansion in the overall economy for the eighth month in a row after contraction in March, April and May,” Timothy R. Fiore, CPSM, CPM, chair of the Institute for Supply Management manufacturing business survey committee, said. “The New Orders Index registered 61.1%, down 6.4 percentage points from the seasonally adjusted December reading of 67.5%. The Production Index registered 60.7%, a decrease of four percentage points compared to the seasonally adjusted December reading of 64.7%. The Backlog of Orders Index registered 59.7%, 0.6 percentage point above the December reading of 59.1%. The Employment Index registered 52.6%, 0.9 percentage point higher from the seasonally adjusted December reading of 51.7%. The Supplier Deliveries Index registered 68.2%, up 0.5 percentage point from the December figure of 67.7%. The Inventories Index registered 50.8%, 0.2 percentage point lower than the seasonally adjusted December reading of 51%. The Prices Index registered 82.1%, up 4.5 percentage points compared to the December reading of 77.6%. The New Export Orders Index registered 54.9%, a decrease of 2.6 percentage points compared to the December reading of 57.5%. The Imports Index registered 56.8%, a 2.2-percentage point increase from the December reading of 54.6%.

“The manufacturing economy continued its recovery in January. Survey committee members reported that their companies and suppliers continue to operate in reconfigured factories, but absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers are continuing to cause strains that limit manufacturing growth potential. However, panel sentiment remains optimistic (three positive comments for every cautious comment), similar to December levels.

“Demand expanded, with the (1) New Orders Index growing at a strong level, supported by the New Export Orders Index expanding; (2) Customers’ Inventories Index remaining in ‘too low’ territory and at a level considered a positive for future production; and the (3) Backlog of Orders Index remaining at high levels.

“Consumption (measured by the Production and Employment indexes) contributed negatively (a combined 3.1-percentage point decrease) to the Manufacturing PMI calculation. Five of the top six industries reported moderate to strong expansion. The Employment Index expanded for a second straight month, but panelists continue to note difficulties in attracting and retaining labor at their companies and supplier facilities.

“Inputs — expressed as supplier deliveries, inventories and imports — continued to indicate input-driven constraints to production expansion at higher rates compared to December, as indicated by minimal gains in inventory levels and declining supplier performance. Imports expanded in the period despite port backlogs but not at levels desired by panelists. Supplier delivery struggles continued, contributing moderately to the Manufacturing PMI calculation. (The Supplier Deliveries and Inventories indexes directly factor into the Manufacturing PMI; the Imports Index does not.) The Prices Index surged dramatically in January, hitting a level last reached in April 2011, indicating continued supplier pricing power.

“Of the six biggest manufacturing industries, five — chemical products; fabricated metal products; transportation equipment; food, beverage and tobacco products; and computer and electronic products — registered moderate to strong growth in January. Petroleum and coal products contracted.

“Manufacturing performed well for the eighth straight month, with demand, consumption and inputs registering strong growth compared to December. Labor market difficulties at panelists’ companies and their suppliers will continue to restrict the manufacturing economy expansion until the coronavirus (COVID-19) crisis abates.”

Of the 18 manufacturing industries, 16 reported growth in January, including machinery, transportation equipment and primary metals. Printing and related support activities and petroleum and coal products were the two industries that reported contraction in January.

What Respondents Are Saying

• “Supplier factory capacity is well utilized. Increased demand, labor constraints and upstream supply delays are pushing lead times. This is more prevalent with international than U.S.-based suppliers.” (Computer and Electronic Products)
• “Business remains strong. Manufacturing running at full capacity.” (Chemical Products)
• “Very strong demand with limitations in supply to meet increased demand.” (Transportation Equipment)
• “Labor continues to be one of our largest challenges.” (Food, Beverage and Tobacco Products)
• “Our current business demand is going way past pre-COVID-19 [levels].” (Fabricated Metal Products)
• “Business is very good. Customer inventories are low, with a significant order backlog through April. Supply base is struggling to keep up with demand, disrupting our production here and there. Raw material lead times have been extended. COVID-19 continues to cause challenges throughout the supply chain. Huge logistics challenges, especially in getting product through ports and in getting containers. We are seeing significant cost increases in logistics and raw materials.” (Machinery)
• “We have had an increase in employees testing positive for COVID-19, negatively impacting manufacturing.” (Miscellaneous Manufacturing)
• “2020 growth at 5% during a very challenging and volatile year. 2021 is expected to bring growth at a 7% or even greater pace. Logistics is the critical concern, but we are currently abating risk.” (Electrical Equipment, Appliances and Components)
• “January 2021 started with strong orders for plastic components in auto, electrical and other sectors. The industry outlook is optimistic. Looking at investing in new equipment for anticipated demand later this year. Reshoring is taking hold with new customer potential.” (Plastics and Rubber Products)
• “Business is improving, but we are still struggling with a shortage of available labor.” (Primary Metals)