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January manufacturing activity declines but still on growth track, reports ISM

By Jeff Berman, Group News Editor
February 03, 2014

Despite seeing declines in its core metrics, manufacturing activity in January continued to show growth for the eighth straight month, according to the Institute for Supply Management’s (ISM) Report on Business.

The PMI, the index used by the ISM to measure manufacturing activity, fell 5.2 percent to 51.3 in January, which is 2.5 percent below the 12-month average of 53.8 and its lowest reading since last May’s 50.0. The PMI is still over the 50 mark—which is the benchmark of strong economic activity—in 13 of the last 14 months, coupled with the overall economy growing now for 56 straight months, according to the ISM.

Each of the report’s four key metrics, including PMI, saw January declines. New Orders, often known as the engine driving manufacturing, fell off a nearly three-year high of 64.2 in December to drop 13.2 percent to 51.2 for its largest decline in four years, and Production dropped 6.9 percent to 54.8 but showed growth for the 17th straight month. Employment fell 3.5 percent to 52.3 but remained in growth mode for the seventh month in a row.

Comments offered up by ISM members in the report pointed to a still positive manufacturing environment, even with January numbers dipping, but there were also some concerns as well.

An apparel, leather & allied products respondent cited slight improvements annually and monthly across most regions and business segments, and a primary metals respondent noted that operations continue to be busy on a near 24x7 basis. But the severe weather conditions impacting much of the county did were not ignored, with a fabricated metal products respondent citing poor weather as a driver that impacted outbound and inbound shipments. 

The bad weather cannot be underestimated when assessing January’s data, according to Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee.

“Manufacturing is still growing,” he said. “The PMI decline caught people off guard, but if you look beyond the numbers and into the respondent comments, for example, a number of panelists cited poor weather conditions as a contributor to issues with New Orders and Inventories (down 3.0 percent to 44.0 for its lowest monthly reading since December 2012), coupled with some companies just being closed for weather-related reasons. There is some impact there as this was the coldest January in a couple of decades.”

Holcomb said it would be premature to be overly concerned about January’s data as it is only one month’s worth of data, especially when taking the long view over the last several months, which has seen strong cumulative growth, coupled with the ISM’s December Semiannual report that called for a strong 2014 for manufacturing.

Addressing Inventories, Holcomb said the 3.0 percent drop is related to cold weather and is certainly an unwanted level of raw materials inventories. In regards to the 7.0 percent spike in Prices, he said it is more normal as the first quarter is when suppliers typically float price increases to shippers for the New Year and lock down new contracts.

On a year-to-date basis, Holcomb said manufacturing is in a good place.

“We are growing over December but not as fast as December grew over November,” he said. “The growth trajectory is continuing and is a good start to the year even though it is at a lower growth rate than expected by many.”

Sterne Agee Chief Economist Lindsey Piegza said in a research note that this was a significantly weaker-than-expected report with headline manufacturing activity dropping back towards breakeven.

“While still positive, manufacturing activity has been losing underlying momentum over the past couple
of months suggesting a muted contribution to growth at least in the near term
while global and domestic demand continue to recover at an uneven pace,” wrote Piegza. “Global manufacturing overall activity has been mixed with a juxtaposition of strength and weakness across Eurozone economies and Chinese manufacturing declining to a six-month low. In the US, extreme weather is thought to have at least in part contributed to a slowdown in production, already heightening expectations for a rebound next month.”

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).

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