ISM reports strong manufacturing growth for January

Manufacturing picked up in 2012 where it left off in 2011: in growth mode.

The Institute for Supply Management (ISM) reported today that the PMI in January, its index used to measure manufacturing activity, hit 54.1 in January, which was 1.0 percent better than January’s 53.1. This marks the highest PMI reading since June 2011, when it hit 55.8. The ISM says that any reading 50 or higher is a sign of economic growth. Since dropping to 51.8 in October, the PMI has grown 2.3 percent during that period.

January’s reading stretches the current manufacturing growth streak to 30 consecutive months, while the overall economy grew for the 32nd consecutive month.

Looking at the report’s key indicators, New Orders rose 2.8 percent to 57.6, and Production tailed off 3.2 percent to 55.7. Employment was basically flat at 54.3. Even though two of these three metrics saw declines, they are each comfortably in the 50’s, which translates to positive growth.

“What a great way to start the year,” said Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, in an interview. “54.1 is a really good number for the PMI, and I especially like the New Orders (up 2.8 percent to 57.6) number, as that is what drives this whole system. Production is still in a good position, too, and Employment is in a great range.”

Supplier Deliveries in January headed up 2.1 percent to 53.6, which Holcomb said was another strong example of the key indicators in the right range and heading in the right direction.

While Production was down 3.2 percent at 55.7, Backlog of Orders was up 4.5 percent to 52.5. Holcomb said this indicates that there may have been maintenance January comes off a holiday period and that can create backlogs at times, which may have been the case.

Prices in January jumped up 8.0 percent to 55.5, representing its biggest monthly gain since September. With January leading off the year, Holcomb said this type of growth was not surprising as price negotiations between suppliers and manufacturing customers happen at that time.

“This is when suppliers come in and their contracts allow them to negotiate prices,” said Holcomb. “We had three months of declining prices coming into January, too. This is a normal indication, and I don’t see it amounting to much over the next few months or even in 2012, as price increases for raw materials are likely to stay in the 2-to-3 percent range, which is less than half the increase experienced in 2011.”

January Inventories were up 4.0 percent at 49.5. While they were up a bit, when compared with New Orders at 57.6, it is an 8.1 percent differential, which Holcomb said is strong, adding that the difference between New Orders and Inventories has been positive for four straight months, which bodes well.

Going forward, he said there will be a focus on keeping inventory levels down to control costs throughout the year.

“U.S. manufacturing has demonstrated that it has been an anchor for the U.S. economy,” said Holcomb.