January manufacturing activity rebounds

Economic activity in the manufacturing sector expanded in January, while the overall economy grew for the 75th consecutive month according to the latest Institute for Supply Management Manufacturing ISM Report On Business (www.ism.ws).

The report was issued by Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee. "The manufacturing sector gained momentum in January as the PMI [Purchasing Manager’s Index] rose 2.3 percentage points, signaling stronger performance in January when compared to the seasonally adjusted 48.4 percent recorded in December. This represents a return to the recent trend of slow growth in manufacturing, as the PMI has 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."

A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. A PMI in excess of 41.1 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates that both the overall economy and the manufacturing sector are growing at this time. "The past relationship between the PMI and the overall economy indicates that the PMI for January (50.7) corresponds to a 3 percent increase in real gross domestic product (GDP) on an annual basis."

Primary metals, miscellaneous manufacturing and machinery reported growth while fabricated metal products contracted.

ISM's New Orders Index registered 49.5 percent in January. The index is 2.6 percentage points higher than the seasonally adjusted 46.9 percent reported in December. A New Orders Index above 51.6 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

Four industries reported increases during January: Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Chemical Products; and Machinery. Fabricated metal products reported a decrease.

ISM's Production Index rose to 55.2 percent in January, an increase of 6.6 percentage points when compared to December's seasonally adjusted reading of 48.6 percent. An index above 49.9 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

ISM's Employment Index registered 47.1 percent in January, which is a decrease of 1.6 percentage points when compared to December's seasonally adjusted reading of 48.7 percent. An Employment Index above 49.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

The delivery performance of suppliers to manufacturing organizations continued to slow in January as the Supplier Deliveries Index increased 0.2 percentage point to 52.8 percent from 52.6 percent registered in December (seasonally adjusted). A reading above 50 percent indicates slower deliveries.

Manufacturers' inventories contracted in January as the Inventories Index registered 49.1 percent, which is 3.7 percentage points higher than December's seasonally adjusted reading of 45.4 percent. This is the 21st consecutive month of inventory liquidation. An Inventories Index greater than 42.4 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The ISM Prices Index registered 76 percent in January, indicating manufacturers are paying significantly higher prices on average when compared to December. While 55 percent of respondents reported paying higher prices and 3 percent reported paying lower prices, 42 percent of supply executives reported paying the same prices as the preceding month. A Prices Index above 47.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.