The US Purchasing Managers Index (PMI) for January was released late last week by the Institute for Supply Management (ISM), and came at a level of 49.1, up two percentage points from December, but still below the key 50 mark that separates US manufacturing expansion from contraction for the 15th straight month.
That as other measures such as recent job numbers and Q4 GDP are more positive, as the economy continues to give mixed signals.
The PMI tracks closely but not exactly with the overall US economy. The January result showed the overall economy continued in expansion for the 45th month after one month of contraction in April 2020.
A Manufacturing PMI above 42.5, over a period of time, generally indicates an expansion of the overall economy.
The other PMI numbers we track were mixed, but generally were more positive than in recent months.
That starts with the New Order Index, which moved into expansion territory at 52.5, 5.5 percentage points higher than the seasonally adjusted figure of 47 recorded in December, in a good sign for future US manufacturing activity.
The January reading of the Production Index of 50.4 was 0.5 percentage point higher than December’s seasonally adjusted figure of 49.9, moving to expansion - though barely.
The Prices Index came it at 52.9, up 7.7 percentage points compared to the reading of 45.2 in December.
That means companies saw a rise in the cost of components, materials and other inputs (below 50 = falling prices), as inflation concerns remain.
In bad economic news, the Backlog of Orders Index registered 44.7, basically flat with December. That means the order book of most companies is shrinking, with the level still well below the 50 mark.
The Supplier Deliveries Index level of 49.1 is 2.1 percentage points higher than the 47.0 recorded in December.
Supplier Deliveries is the only ISM index that is inversed, with a reading of above 50 indicating slower deliveries, which is typical as the economy improves and customer demand increases - or the reverse, as was seen in January
The Inventories Index increased 2.3 percentage points to 46.2 from December’s seasonally adjusted reading of 43.9, indicating inventory levels at companies are again decreasing.
Said Timothy Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee: “The US manufacturing sector continued to contract, though at a marginal rate compared to December. Demand moderately improved, output remained stable and inputs are accommodative. Demand moderated, with the New Orders Index expanding at a respectable rate.”
As always, the ISM report provides a graphic of the full PMI scores the last 12 months, which as can be seen shows the measure has been below the key 50 mark each and actually from November 2022, and it is now averaging just 47.2 over the past year.
Source: ISM
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Just four of the 18 industry US sectors tracked by the PMI reported growth in January: Apparel, Leather & Allied Products; Textile Mills; Transportation Equipment; and Chemical Products.
As always, there were some interesting comments from PMI survey respondents.
“US economic outlook is affecting customer orders, and the current backlog is quite low compared to past quarters,” said one manager in the computer/electronics sector.
Added one respondent in the chemicals sector, “The start of 2024 looks good. Sales are above expectations, and costs are mostly stable. A few commodities are up in cost due to supply shortages. Many previously short commodities market positions have corrected themselves. There is a real short-term increase in the cost of international freight.”
Finally, a manager in the textile sector noted that “Remarkable slowdown in business in December. January has picked up, but not to previous-year levels.”
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