The Institute for Supply Management (ISM) released it purchasing managers index (PMI) this morning, showing a modest uptick in the pace of overall manufacturing activity in January. Note that much of the data for 2011 were revised due to new seasonal adjustment factors. With that revision, the PMI rose from 53.1 in December to 54.1 in January. The index has been above 50 – its threshold for expansion in the sector – for 30 months, or since August 2009.
Looking at the various components the news is more mixed. While all of the key areas are over 50 except for inventories, a couple did reflect some easing in their pace of growth. On the positive side, the new orders variable grew stronger, up from 54.8 to 57.6. Supplier deliveries and new export orders also improved in the month.
However, production, employment and imports rose at a slower rate. Inventories continued to contract, but neared the neutral point. The pace of price increases for raw materials also gained some steam after contracting in the previous three months.
Most of the sample comments provided by ISM echoed these sentiments. A machinery respondent, for instance, said, “Year starting a little slow, but customers are positive about increased business in 2012.” This sums up the bulk of the comments, with optimism for a stronger year.
Interestingly, one individual in the computer and electronics manufacturing sector added, “Business lost to offshore is coming back.” We continue to hear such anecdotal pieces of evidence about reshoring, and if nothing else, it provides another hint of American competitiveness in light of recent labor productivity gains. The Bureau of Economic Analysis is releasing new productivity data for the fourth quarter tomorrow.
Overall, the ISM data shows the manufacturing sector continues to recover. But, like other data released this week it is clear that growth has been modest at best. January appears to be growing less strongly than in November or December. While the new orders figures in this report bode well for future activity, it would be nice to see that translate into higher production and employment growth in the months ahead.
Chad Moutray is chief economist, National Association of Manufacturers.