ISM: Growth in Manufacturing Activity Slowed Considerably in January

By February 3, 2014Economy

The Institute for Supply Management (ISM) said that the purchasing managers’ index (PMI) slowed considerably to begin the new year, down from 56.5 in December to 51.3 in January. This report mirrors other recent releases which have shown weaknesses, with weather and the holidays dampening demand and output. Indeed, a couple of the sample comments referenced the poor weather conditions as a contributing factor.

The slower pace of growth in January came after five months of significant strength in manufacturing activity, particularly for sales and production, both of which had index values over 60 from August to December. On the positive side, the manufacturing sector has now expanded for eight straight months, having recovered from a number of challenges last spring. To the extent that weather was the main factor in the lower figures in January, we would hope to see better data in February and beyond. In fact, manufacturers remain “cautiously optimistic” overall about 2014, as seen in the comments provided by ISM and in other reports.

Looking specifically at the January data, the various components decelerated across-the-board. The index for new orders fell sharply from 64.4 in December to 51.2 in January, its slowest pace since last May. Production (down from 61.7 to 54.8), exports (down from 55.0 to 54.5), and employment (down from 55.8 to 52.3) were also lower. The slight drop in export orders suggest that the decline in sales were mainly attributable to domestic factors, with modest gains in international orders still prevalent. That is a good sign.

There continues to be modest hiring growth, but with a persistent hesitancy on the part of some firms to add workers. It will be interesting to see how the easing in employment growth seen in the PMI data translated into new manufacturing hires nationally, with the Bureau of Labor Statistics releasing new jobs data on Friday. Similar to the ISM data, manufacturing employment growth ended 2013 on a strong note, adding 16,000 net new workers on average between August and December.

The other notable element was the acceleration in pricing pressures. The index for raw material costs rose from 53.5 to 60.5, its highest level since February 2013. While inflation remains in-check for now, this figure suggests that some costs have begun to pick up.

In general, this report shows that manufacturers began 2014 with some softness, with winter weather dampening both sales and output. Overall, manufacturing activity was up strongly in the second half of 2013, and we hope that the January numbers prove to be just a respite in the rebound that we had been witnessing.

While we hope that the weaknesses seen in the ISM manufacturing report are temporary, these data also highlight some fragility of the current economy. With that in mind, manufacturers feel that it will be important for policymakers to adopt pro-growth measures that will allow the sector to flourish and to return us to the growth that we had been seeing a year’s end.

Chad Moutray is the chief economist, National Association of Manufacturers.


Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), 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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