ISM Manufacturing Orders And Production Continue To Grow

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ism_logo_graphicEconomical activity in the manufacturing sector expanded in January for the 20th straight month, as well as the total market grew for the 68th consecutive month, say the countries supply executives in the most recent Manufacturing ISM Report On Business.

Production expanded in January as the PMI registered 53.5 percent, a decline of 1.6 percentage points when compared to Decembers reading of 55.1 percent, suggesting increase in manufacturing for the 20th straight month. A reading above 50 percent indicates the manufacturing economy is generally expanding; below 50 percent indicates it is generally contracting.

The dividing line between increase and decline is 50 percent, thus while January manufacturing production increased the index amount indicates production is increasing at a slower speed. Every one of the elements of the index that deal with orders and production were less favorable. The backlog index dropped to 45, suggesting that orders are not adequate to keep backlogs upwards. The sole good news in the report is the employment index continues to indicate a growing amount of manufacturing employment.

As a result, the January PMI suggests increase for the 68th straight month in the total market, and suggests expansion in the production sector for the 20th straight month.

Remarks in the panel suggest that many businesses, although not all, are experiencing strong demand as 2015 kicks off. The West Coast dock slow down remains an issue, negatively affecting both exports and imports together with stocks, includes Holcomb.

Orders, Production and Stock

A New Orders Index above 52.1 percent, over time, is normally consistent with an rise in the Census Bureaus series on manufacturing orders (in constant 2000 dollars).

ISMs Generation Index read 56.5 percent in January, which is a decline of 1.2 percentage points when compared to the seasonally adjusted 57.7 percent reported in December, indicating increase in generation for the 11th straight month. An index above 51.1 percent, over time, is normally consistent with an rise in the Federal Reserve Boards Industrial Production amounts.

The Inventories Index registered 51 percent in January, which is 5.5 percentage points higher than the 45.5 percent filed in December, suggesting raw materials stocks are growing following one month of stocks contracting.

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Exports, Imports and Costs

Januarys reading represents a month of contraction in the amount of exports, following 25 straight months of increase in new export orders.

This months reading signifies 24 consecutive months of increase in imports.

An important drawback to the ISM report is the production trade deficit proceeds to get worse, Meckstroth warns. Imports are growing faster and exports are dropping. The export index dipped below 50 to 49.5 but the imports index climbed to 55.5 from 55 in December. Foreign trade is likely to be a drag on production task in 2013.

The ISM Prices Index read 35 percent in January, which will be a decrease of 3.5 percentage points compared to the December reading of 38.5 percent. In January, 11 percent of respondents reported paying higher costs, 41 percent reported paying lower costs, and 48 percent of supply executives reported paying the same costs as in December. It is the third consecutive month that raw materials costs have shown a decline, using the Costs Index falling a total of 18.5 percentage points over these three months. A Prices Index above 52.1 percent, over time, is normally consistent with an rise in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Dropping oil prices along with other commodity costs are apparent in the report, Meckstroth included. The price index suggested decreasing costs for the past three months. Deflation in commodity costs is good for consumers (particularly petroleum costs) but it can affect the rate of investment spending.

Employment

It is the 19th straight month of increase in employment. An Employment Index above 50.6 percent, over time, is normally consistent with an rise in the Bureau of Labor Statistics data on manufacturing employment.

The January ISM report is neither great nor poor but lukewarm, Meckstroth reasons. Making creation was extremely powerful in the fourth quarter (5.2 percent increase in manufacturing industrial creation), with the entire market decelerating from a increase of 5 percent in the third quarter to 2.6 percent in the fourth quarter. Production action is now changing into a slower, more sustainable rate of growth.

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