January manufacturing PMI reading was 49.7, down fractionally from the flash reading (49.8) but up slightly from December's 49.6. It was the second month of contraction. Yesterday, the CFLP manufacturing reading also showed contraction with a reading of 49.8.
Manufacturers saw a slight deterioration in operating conditions at the start of the year. Although output rose slightly and new orders broadly stabilized, staffing levels were cut for the fifteenth successive month. Meanwhile, relatively subdued client demand led companies to reduce their stock holdings of both post and pre-production goods in January. On the costs front, lower raw material prices led to the steepest reduction in average input costs since March 2009, which contributed to a sharp decline in prices charged.
Manufacturing output expanded in January, though the rate of increase was only fractional. This was the first time that production has risen in three months. Meanwhile, total new business was broadly unchanged, following a slight reduction in December. According to panelists, relatively muted client demand, both at home and overseas, dampened new order growth. Furthermore, growth in new export work eased to a marginal pace that was the slowest in the current nine-month sequence.
Purchasing activity declined for the second straight month. However, the rate of reduction was similar to that seen in December and marginal. Relatively subdued client demand also led companies to reduce their inventories of inputs and finished goods at the start of the year. Furthermore, stocks of pre-production goods declined at the strongest rate in nine months.
Average input costs declined for the sixth month, with the rate of deflation accelerating to the sharpest since March 2009. Output charges set by Chinese manufacturers also fell at an accelerated rate in January.
Purchasing Managers' Manufacturing Index (PMIs) is based on monthly questionnaire surveys of selected companies which provide an advance indication of what is really happening in the private sector economy by tracking changes in variables such as output, new orders, stock levels, employment and prices across the manufacturing sectors.
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
The Markit PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.
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