January ISM Index Bodes Well for Manufacturers

By February 1, 2011Economy

Today’s Manufacturing Report on Business issued by the Institute for Supply Chain Management (ISM) shows the prospect for increasing manufacturing sales in the near term.  This report confirms last week’s Commerce Department report that final sales increased at a torrid annual rate of over seven percent in the fourth quarter of 2010.  Together, these two indicators give reason for near-term manufacturing optimism.

The ISM Purchasing Managers Index (PMI) increased to 60.8 in January 2011.  The index is a “diffusion index” that measures the proportion of companies showing increases compared to decreases.  The January report is important for several reasons.  First, it is the highest index level since May 2004, and is up significantly from the previous month.  Second, the PMI index is reinforced by strong positive signals from supporting indices – particularly the important new order series, which leaped to 69.7 in January, the 19th consecutive month for growth, and up sharply from the slower growth trend of recent months.  Production, inventories and order backlog data also confirm the jump in outlook.

Exports have been one of the driving forces of the manufacturing recovery, and the report shows that the exports index increased in January by 7.5 percent to 62 percent. Exports are critical to manufacturing growth and our nation’s economic recovery and we need to continue to work to increase our manufactured goods exports to grow jobs and the economy. 

In January 14 of the 18 following manufacturing industries reported growth including: Petroleum & Coal Products; Primary Metals; Apparel, Leather & Allied Products; Wood Products; Computer & Electronic Products; Transportation Equipment; Fabricated Metal Products; Machinery; Paper Products; Miscellaneous Manufacturing; Chemical Products; Furniture & Related Products; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components.

One cautionary note was also evident in the data is that prices are rising.  The price index rose to 81.5 percent, indicating a widespread range of price increases for manufacturing input.  Two-thirds of respondents indicated their input prices had increased in January.

All in all, today’s report shows that manufacturing output is likely to grow faster in the coming months.  However, we still have a ways to go for manufacturing to return to the peak pre-recession levels and then to a growth path that can set new records.

Frank Vargo is the NAM vice president for international economic affairs

Leave a Reply