January US ISM Index at 52.9 Percent After Seasonal Adjustments While Uncertainty Persists

Economic activity in the manufacturing sector registered 52.6 percent in January, a 4.7-percentage point increase compared to the seasonally adjusted reading of 47.9 percent in December and the first expansion in 12 months, according to the latest ISM Manufacturing PMI Report.  

Three demand indicators (New Orders, Backlog of Orders, and New Export Orders) are in expansion, and the Customers’ Inventories Index remains in “too low” territory, contracting at a faster rate. New Orders expanded for the first time since August, with a reading of 57.1 percent, up 9.7 percentage points over December’s seasonally adjusted figure and its highest since February 2022. The Backlog of Orders Index registered 51.6 percent, up 5.8 percentage points compared to December and the highest reading since August 2022. The New Export Orders Index reading of 50.2 percent is 3.4 percentage points higher than December.

Although these are positive signs for the start of the year, they are tempered by commentary citing that January is a reorder month after the holidays. Some buying also appears to be driven by attempts to get ahead of expected price increases due to ongoing tariff issues.

Regarding output, the January Production Index (55.9 percent) is 5.2 percentage points higher than December’s seasonally adjusted figure and the highest since February 2022. The Production Index is in expansion for the third month in a row, and the Employment Index, though still in contraction, saw a 3.3-percentage point improvement. However, two-thirds of panelists still indicate that managing head counts is the norm at their companies as opposed to hiring.

Inputs (defined as supplier deliveries, inventories, prices, and imports) were mixed. The Supplier Deliveries Index indicated a slowdown for the second month in a row after one month in “faster” territory. Supplier Deliveries is the only ISM PMI index that is inversed; a reading above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases. The Inventories Index registered 47.6 percent, up 1.9 percentage points compared with December’s seasonally adjusted reading. The Customers’ Inventories Index reading of 38.7 percent is a 4.6-percentage point decrease compared with December and the lowest since June 2022.

The Prices Index remained in expansion territory, registering 59 percent, 0.5 percentage points higher than December’s reading. The Imports Index registered 50.0 percent, 5.4 percentage points higher than December’s reading.

Twenty percent of the sector’s gross domestic product (GDP) contracted in January, compared with 85 percent in December, and the percentage of manufacturing GDP in strong contraction (defined as a composite PMI of 45 percent or lower) decreased to 12 percent compared with December.

The nine manufacturing industries reporting growth in January, listed in order, are: Printing & Related Support Activities; Apparel, Leather & Allied Products; Fabricated Metal Products; Primary Metals; Transportation Equipment; Machinery; Chemical Products; Food, Beverage & Tobacco Products; and Computer & Electronic Products. The eight industries reporting contraction in January, in the following order, are: Textile Mills; Wood Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Plastics & Rubber Products; Furniture & Related Products; and Miscellaneous Manufacturing.

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