ISM: Manufacturing Sector Returns To Slow Growth Trend

Manufacturing index registered 50.7 percent in January, signaling stronger performance than the seasonally-adjusted 48.4 recorded in December.

TEMPE, Ariz. — The manufacturing sector expanded in January according to the Institute for Supply Management (ISM).
 
“The manufacturing sector gained momentum in January as the PMI rose 2.3 percentage points, signaling stronger performance in January when compared to the seasonally-adjusted 48.4 percent recorded in December,” said Norbert Ore, chair of the ISM Manufacturing Business Survey Committee. “This represents a return to the recent trend of slow growth in manufacturing, as the PMI averaged 50.2 percent for the past six months. The PMI was driven by the Production Index, which made a rebound of 6.6 percentage points during the month, while the New Orders Index reflected a slight decline at 49.5 percent.”
 
For January, respondents were asked if turmoil in the financial markets has been having any effect on their ability to obtain regular or additional financing, with 7.4 percent saying yes and 92.6 percent saying no.
 
Respondents were also asked to indicate how they feel about the next 12 months compared to 2007, with 22.9 percent expecting better, 37.5 percent expecting same, and 39.6 percent expecting worse.
 
The PMI for the month was 50.7 percent, up 2.3 percent compared to December. A reading above 50 indicates the manufacturing economy is generally expanding.
 
"In most circumstances, we would consider a reading of 50.7 to be marginal," Ore said. "But in the context of December's decline, it's good news. It's back on trend."
 
New orders increased 2.6 percent from December to 49.5 in January. Production rose 6.6 percent from December to 55.2.
 
Employment fell 1.6 percent to 47.1 percent.
 
Supplier deliveries continued to slow in January, as the index increased 0.2 percent to 52.8. A reading above 50 percent indicated slower deliveries. Inventories contracted in January, with the index rising 3.7 percent to 49.1.
 
For January, the Prices Index was at 76, indicating manufacturers are paying significantly higher prices on average when compared to December.
 
Backlog of orders rose one percent to 44 in January, marking the fourth consecutive month of contraction.
 
New export orders increased 6 percent in January to 58.5. Imports of materials by manufacturers rose 4.5 percent in January to 52.5.
 
“The ISM report on manufacturing activity shows that manufacturers reduced inventories in the fourth quarter and entered the new year with lean supply shelves,” said Dan Meckstroth, Chief Economist, Manufacturers Alliance/MAPI. â€śSome inventory rebuilding to slightly boost production was in order due to steep inventory reductions. The big ticket housing and motor vehicles markets, though, are declining and they are softening demand in many intermediate material industries. It is clear that, in this cycle, the manufacturing recession will be concentrated in the consumer goods sector. However, strength in capital goods industries and a broad-based increase in exports should cushion the downturn.”
 
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