The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) eased somewhat, down from 54.4 in December to 53.7 in January. Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released on February 3. All of the key subcomponents of the index were lower to begin the new year, with winter weather impacting overall U.S. production.
For instance, the index for output dropped 3.9 points from 57.3 to 53.4. As such, production growth continued to expand, but at the slowest pace in three months. Similarly, there were lower data points for new orders (down from 56.1 to 54.1) and employment (down from 54.0 to 53.2). To the extent that sales growth was positive, it stemmed largely from domestic increases. New export orders (down from 51.4 to 48.9) contracted slightly in January for the first time since September.
Despite the deceleration in activity in January, the longer-term trend for U.S. manufacturers has generally shown improvement. After weaknesses in the spring months (e.g., the Markit Manufacturing PMI bottomed out at 51.9 in May), the data have made progress in recent months, reflecting modest growth overall. If cold weather contributed to January’s slower activity, the impact should be temporary, and we should get some indication of that, either in the final data release or in the February numbers.
Meanwhile, financial markets have reacted to news that manufacturing activity in China has unexpectedly contracted. The HSBC Flash China Manufacturing PMI fell from 50.5 in December to 49.6 in January. This was the first decline since July, following stabilization in the Chinese economy over the past six months. The reduction in the overall PMI figure stemmed largely from fewer new orders (down from 51.8 to 49.8) and exports (down from 50.3 to 49.0). Hiring continued to be negative (down from 48.8 to 47.8), with the employment index below 50 each month since March.
On the other hand, the manufacturing output data (down from 51.8 to 51.3) remain expansionary, albeit at a slower pace than the month before. In fact, the output measure has exceeded 50 for six consecutive months, suggesting that growth might be soft but it is still expanding modestly. Indeed, real GDP in the fourth quarter of 2013 decelerated, as well, from an annual rate of 7.8 percent in the third quarter to 7.7 percent. Nonetheless, the Chinese economy continues to grow solidly, even if it is slower than the double-digit rates that some had been accustomed to a few years ago.
In contrast to the Chinese and U.S. reports, European manufacturing activity strengthened. The Markit Flash Eurozone Manufacturing PMI increased from 52.7 in December to 53.9 in January. This was the highest point for the PMI since May 2011. The underlying data were mostly higher, including new orders (up from 54.2 to 55.4), output (up from 54.8 to 56.7), exports (up from 53.9 to 55.2), and employment (up from 49.9 to 50.7). The hiring figure is notable in that it was the first time since January 2012 that net employment growth was positive.
The pace of growth has varied from country to country, with German manufacturing accelerating (up from 54.3 to 56.3) but French production continuing to contract (up from 45.2 to 48.2), albeit with a slower rate of decline.
Even with stabilizing conditions in Europe, growth on the continent remains far from robust, with real GDP in the third quarter up just 0.1 percent and some worries about deflation, with pricing pressures decelerating. Despite such worries, the Markit PMI data reflect modest growth in output prices, which have been slightly expansionary since July.
Chad Moutray is the chief economist, National Association of Manufacturers.
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