U.S. manufacturing contracts again in January

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The U.S. Manufacturing Purchasing Managers Index hits its lowest level in January since the pandemic recovery began. PHOTO courtesy Honda.

Economic activity in the U.S. manufacturing sector contracted in January for the third consecutive month following a 28-month period of growth, according to the latest Manufacturing ISM Report On Business.

The January Manufacturing Purchasing Managers Index (PMI) registered 47.4%, 1 percentage point lower than the seasonally adjusted 48.4% recorded in December. It is the lowest PMI since May 2020, when it registered a seasonally adjusted 45.5%.

Of the six biggest manufacturing industries, one — Transportation Equipment — registered growth in January.

“The U.S. manufacturing sector again contracted, with the Manufacturing PMI at its lowest level since the coronavirus pandemic recovery began. With Business Survey Committee panelists reporting softening new order rates over the previous nine months, the January composite index reading reflects companies slowing outputs to better match demand in the first half of 2023 and prepare for growth in the second half of the year. Demand eased, with the (1) New Orders Index contracting strongly, (2) New Export Orders Index still below 50 percent but improving, (3) Customers’ Inventories Index contracting slightly, a positive for future production and (4) Backlog of Orders Index recovering for a second month, but still in strong contraction,” commented Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.

Other U.S. manufacturing data points captured by the ISM Report on Business included:

  • The New Orders Index remained in contraction territory at 42.5 percent, 2.6 percentage points lower than the seasonally adjusted figure of 45.1 percent recorded in December.
  • The Production Index reading of 48 percent is a 0.6-percentage point decrease compared to December’s seasonally adjusted figure of 48.6 percent.
  • The Prices Index registered 44.5 percent, up 5.1 percentage points compared to the December figure of 39.4 percent.
  • The Backlog of Orders Index registered 43.4 percent, 2 percentage points higher than the December reading of 41.4 percent.
  • The Employment Index continued in expansion territory (50.6 percent, down 0.2 percentage point from December’s seasonally adjusted 50.8 percent) after emerging from contraction territory (48.9 percent, seasonally adjusted) in November.
  • The Supplier Deliveries Index figure of 45.6 percent is 0.5 percentage point higher than the 45.1 percent recorded in December; the last two readings are the index’s lowest since March 2009 (43.2 percent).
  • The Inventories Index registered 50.2 percent, 2.1 percentage points lower than the seasonally adjusted December reading of 52.3 percent.
  • The New Export Orders Index reading of 49.4 percent is 3.2 percentage points higher than December’s figure of 46.2 percent.
  • The Imports Index continued in contraction territory at 47.8 percent, 2.7 percentage points above the December reading of 45.1 percent.

“New order rates remain depressed due to buyer and supplier disagreements regarding price levels and delivery lead times; these should be resolved by the second quarter. In the meantime, panelists’ companies are attempting to maintain head-count levels during the anticipated slow first half in preparation for a strong performance in the second half of 2023. Eighty-six percent of manufacturing gross domestic product (GDP) is contracting, up from 85 percent in December. However, 26 percent of sector industries had a composite PMI calculation of below 45 percent in January (a stronger indication of industry sluggishness), down from 35 percent the previous month,” added Fiore.

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