ISM: Manufacturing Activity Picks Up Slightly in January

By February 1, 2013Economy

The Institute for Supply Management’s purchasing managers’ index (PMI) reflected an increase in manufacturing activity in the past month, up from 50.2 in December to 53.1 in January. This is the highest level experienced since April and a sign that there have been some improvements in the sector in January even as some headwinds and uncertainties continue.

Most importantly, the index for new orders shifted from contraction (49.7) to slight growth (53.3), suggesting that sales have picked up somewhat. This helped to move many of the other subcomponents.

Indeed, several of the indicators were higher for the month. This included production, employment, and inventories. The employment measure stands in contrast to the rather tepid jobs growth for manufacturers reported by the Bureau of Labor Statistics this morning. The employment index rose from 51.9 to 54.0.

The international trade numbers were one of the weak spots. The pace of new exports and new imports both slowed, with each of them essentially flat. However, this is progress on the contracting levels of trade experienced a few months ago.

The sample comments provided are more mixed than the positive data might suggest. While there are a couple respondents citing improving conditions, there are also those which express continuing anxieties about the current marketplace. For instance, a machinery manufacturer said, “Fiscal cliff, uncertainty in general and E.U. economic weaknesses are factors causing our customers to be very tentative with commitments for product purchases in 2013.” Another individual in the fabricated metal business cited higher payroll tax as something that he or she is watching closely.

These comments help to remind us that significant challenges remain for manufacturers. We have seen evidence that some of these firms continue to pull back as they await some clarity on the many uncertainties in the economy. Despite the deal to avert the fiscal cliff many in the defense supply chain await a solution to the automatic budget cuts awaiting them on March 1. The slower export figures are another reminder.

Still, these figures also show that there has been some upward movement in activity in January, which is a nice sign of progress. As I mentioned in my post this morning on the January jobs report, we have seen similar findings in other indicators, and it is clear that many manufacturers are cautiously optimistic about a better 2013 despite their declining optimism in 2012. Let’s hope that policymakers do not become an obstacle to faster growth for manufacturers.

Chad Moutray is chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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