Institute of Supply Management (ISM) Purchasing Managers Index (PMI) for the
Manufacturing
sector came in at 50.9 for January. Well above the street's expectation of 49.3.
The last time we had a reading this high was September 2022 (28 months ago), and the first month in expansion territory (above 50 -orange line- is expansionary) over the last 26 months. January’s results were 1.6 points better than December's and the 3rd straight month that the PMI increased. 8 of 18 manufacturing industries reported growth in January.
“U.S. manufacturing activity expanded in January after 26 consecutive months of contraction. Demand clearly improved, while output expanded and inputs remained accommodative. Demand and production improved; and employment expanded. However, staff reductions continued with many companies, but at weaker rates. Prices growth was moderate, indicating that further growth will put additional pressure on prices.”
The three most forward-looking sub-components of the index are new order, production, and employment. New orders increased from 52.1 to 55.1, with 9 industries reporting growth.
“Panelists noted an improved level of demand performance, with a 2-to-1 ratio of positive comments versus those expressing concern about near-term demand, an improvement compared to December.”
The production index moved into expansion territory in January, going from 49.9 to 52.5. With 6 industries reporting growth. The first monthly expansion in the last 8 months.
The employment index also moved into expansion territory last month, going from 45.4 to 50.3. After contracting for 14 out of the last 16 months. Although only 4 industries reported growth.
Unfortunately, the prices paid index also increased last month. Going from 52.5 to 54.9, with 11 industries reporting paying higher prices for their raw materials.
The manufacturing sector had been in contraction territory over the last couple years (orange line), but stabilizing above the 42.3 level (grey line) indicates a contraction in the overall economy. A return to growth would certainly be a welcome development, seeing that the manufacturing sector is roughly 1/3rd of the US economy today. But a word of caution; one month doesn’t make a trend. We came close to pushing into expansion territory back in March 2024, only to sink back down again. And we remain well below the historical average of 52.6.
But having the 3 leading index subcomponents (new orders, production, employment) all back above the 50 level again, is a positive sign. If we can ever get prices paid to contract again, even better.