| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| Index | 47.4 | 43.0 to 48.1 | 49.1 | 47.4 | 47.1 |
Highlights
US manufacturing activity was in contraction territory for the 15th straight month in January, but the key index rose further from December on a surprise jump in new orders and stable production, staying on course toward a pickup from being in a trough, data from the Institute for Supply Management showed.
The sector index compiled by the ISM, which shows general direction, rose 2.0 percentage points to 49.1 in January from 47.1 (revised down from 47.4) in December, coming in stronger than the median economist forecast of 47.4. It remained below 50, which indicates contraction in the sector, but stood at the highest point in 15 months, since recording 50.0 in October 2022.
"The US manufacturing sector continued to contract, though at a marginal rate compared to December," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement."Demand moderately improved, output remained stable and inputs are accommodative."
Fiore told reporters that he is"still bullish" about his prediction made last month that the main index would go above the neutral line of 50 in March. Summarizing the January survey, he said,"This could be the beginning of growth."
But he added that the jump in new orders subindex in the January survey was a surprise and new orders may face headwinds in February, and thus that he needs to see a few more months of data to confirm whether this category is on a recovery track. Last month, Fiore had projected a"spike" in the ISM new orders subindex in a couple of months, and that the inventories subindex would start climbing"fairly rapidly" in coming months.
Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index posted growth after being in contraction for 16 months. It rose 5.5 percentage points to 52.5 in January after falling 0.8 point to 47.0 in December, hitting the highest since 55.3 in May 2022.
The production index also popped above the neutral line of 50 after being in contraction for seven months, rising 0.5 point to 50.4 in January after rising 1.1 points to 49.9 in December."Panelists' companies essentially maintained the levels of output from December and November and now have an opportunity to increase production, based on the 'too low' reading for the customers' inventories index," Fiore said.
The employment index contracted for the fourth straight month, edging down 0.4 point to 47.1 in January after rising 1.4 points to 47.5 in December. Attrition, freezes and layoffs were used to reduce head counts."The majority of panelists' comments indicated labor force reductions; in the previous two months, they were equally split between companies hiring and others reducing their labor forces," Fiore said. An employment index above 50.3, over time, is generally consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment.
The delivery performance of suppliers to manufacturing organizations was faster for the 16th straight month, thanks to improved supply chains. The supplier deliveries index at 49.1 is up 2.1 points from 47.0 in December, when it rose 0.8 point. This is the only ISM subindex that is inversed; a reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
The manufacturing inventories index contracted for 12 months but at a slower pace. It rose 2.3 points to 46.2 in January after falling 0.4 point to 43.9 in December.
Among other subindexes, the customers' inventories index slumped 4.4 points to 43.7 in January after falling 2.7 points to 48.1 in December, hitting the lowest level since October 2022, when it was at 41.6. It indicates the level is"too low." Fiore said panelists report their companies' customers have a significant shortage of their products in inventory, which is considered positive for future new orders and production.
The prices index indicated the first increase in nine months as higher commodities prices were only partly offset by lower energy prices. It jumped 7.7 points to 52.9 in January after dipping 4.7 points to 45.2 in December, reaching the highest since 53.2 in April 2023.
The sector index compiled by the ISM, which shows general direction, rose 2.0 percentage points to 49.1 in January from 47.1 (revised down from 47.4) in December, coming in stronger than the median economist forecast of 47.4. It remained below 50, which indicates contraction in the sector, but stood at the highest point in 15 months, since recording 50.0 in October 2022.
"The US manufacturing sector continued to contract, though at a marginal rate compared to December," Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement."Demand moderately improved, output remained stable and inputs are accommodative."
Fiore told reporters that he is"still bullish" about his prediction made last month that the main index would go above the neutral line of 50 in March. Summarizing the January survey, he said,"This could be the beginning of growth."
But he added that the jump in new orders subindex in the January survey was a surprise and new orders may face headwinds in February, and thus that he needs to see a few more months of data to confirm whether this category is on a recovery track. Last month, Fiore had projected a"spike" in the ISM new orders subindex in a couple of months, and that the inventories subindex would start climbing"fairly rapidly" in coming months.
Among the five subindexes that directly factor into the manufacturing PMI, the new orders Index posted growth after being in contraction for 16 months. It rose 5.5 percentage points to 52.5 in January after falling 0.8 point to 47.0 in December, hitting the highest since 55.3 in May 2022.
The production index also popped above the neutral line of 50 after being in contraction for seven months, rising 0.5 point to 50.4 in January after rising 1.1 points to 49.9 in December."Panelists' companies essentially maintained the levels of output from December and November and now have an opportunity to increase production, based on the 'too low' reading for the customers' inventories index," Fiore said.
The employment index contracted for the fourth straight month, edging down 0.4 point to 47.1 in January after rising 1.4 points to 47.5 in December. Attrition, freezes and layoffs were used to reduce head counts."The majority of panelists' comments indicated labor force reductions; in the previous two months, they were equally split between companies hiring and others reducing their labor forces," Fiore said. An employment index above 50.3, over time, is generally consistent with an increase in the Bureau of Labor Statistics data on manufacturing employment.
The delivery performance of suppliers to manufacturing organizations was faster for the 16th straight month, thanks to improved supply chains. The supplier deliveries index at 49.1 is up 2.1 points from 47.0 in December, when it rose 0.8 point. This is the only ISM subindex that is inversed; a reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
The manufacturing inventories index contracted for 12 months but at a slower pace. It rose 2.3 points to 46.2 in January after falling 0.4 point to 43.9 in December.
Among other subindexes, the customers' inventories index slumped 4.4 points to 43.7 in January after falling 2.7 points to 48.1 in December, hitting the lowest level since October 2022, when it was at 41.6. It indicates the level is"too low." Fiore said panelists report their companies' customers have a significant shortage of their products in inventory, which is considered positive for future new orders and production.
The prices index indicated the first increase in nine months as higher commodities prices were only partly offset by lower energy prices. It jumped 7.7 points to 52.9 in January after dipping 4.7 points to 45.2 in December, reaching the highest since 53.2 in April 2023.
Market Consensus Before Announcement
The ISM manufacturing index has been in contraction the last 14 months and is expected to remain so in January, at a consensus 47.4 which would be unchanged from December.
Definition
The manufacturing composite index from the Institute for Supply Management is a diffusion index calculated from five of the eleven sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms nationwide. The survey queries purchasing managers about the general direction (tracked in volumes) of production, new orders, order backlogs, their own inventories, customer inventories, employment, supplier deliveries, exports, and imports. Data on changes in input prices (prices paid) are also tracked. The five components of the composite index are new orders, production, employment, supplier deliveries, and inventories (their own, not customer inventories). The five components are equally weighted. The questions are qualitative rather than quantitative; that is, they ask about the general direction rather than the specific level of activity. Each question is adjusted into a diffusion index which is calculated by adding the percentage of positive responses to one-half of the unchanged responses.
Description
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 ISM manufacturing index, 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 ISM 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. More than one of the ISM sub-indexes provide insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.
Importance
The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and is not subject to revision.
Interpretation
The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market. However, a healthy manufacturing sector, indicated by rising ISM index levels, bodes well for corporate earnings and is bullish for the stock market.
The level of the ISM manufacturing index indicates whether manufacturing and the overall economy are growing or declining. Historically, readings of 50 percent or above are associated with an expanding manufacturing sector and healthy GDP growth overall. Readings below 50 indicate a contracting manufacturing sector but overall GDP growth is still positive until the ISM index falls below 42.5 (based on statistics through January 2011). Readings in between these two levels suggest that manufacturing is declining while GDP is still growing but only very slowly.
In addition to the ISM manufacturing composite index, the various sub-components contain useful information about manufacturing activity. The production component is related to industrial production, new orders to durable goods orders, employment to factory payrolls, prices to producer prices, export orders to merchandise trade exports and import orders to merchandise imports.
Vendor (supplier) deliveries are an important component of report. The more slowly orders are filled and delivered, the stronger the economic growth and the greater the potential for inflation. When orders are filled quickly, it means that producers don't have as many to fill.
The ISM manufacturing composite index and its sub-components can be subject to some monthly volatility, making the three-month average of the monthly levels more indicative of the trend.
The ISM 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. More than one of the ISM sub-indexes provide insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data. As a result, the bond market is highly sensitive to this report.
Importance
The ISM manufacturing composite index indicates overall factory sector trends. The relevance of this indicator is enhanced by the fact that it is available very early in the month and is not subject to revision.
Interpretation
The bond market will rally (fall) when the ISM manufacturing index is weaker (stronger) than expected. Equity markets prefer lower interest rates and could rally with the bond market. However, a healthy manufacturing sector, indicated by rising ISM index levels, bodes well for corporate earnings and is bullish for the stock market.
The level of the ISM manufacturing index indicates whether manufacturing and the overall economy are growing or declining. Historically, readings of 50 percent or above are associated with an expanding manufacturing sector and healthy GDP growth overall. Readings below 50 indicate a contracting manufacturing sector but overall GDP growth is still positive until the ISM index falls below 42.5 (based on statistics through January 2011). Readings in between these two levels suggest that manufacturing is declining while GDP is still growing but only very slowly.
In addition to the ISM manufacturing composite index, the various sub-components contain useful information about manufacturing activity. The production component is related to industrial production, new orders to durable goods orders, employment to factory payrolls, prices to producer prices, export orders to merchandise trade exports and import orders to merchandise imports.
Vendor (supplier) deliveries are an important component of report. The more slowly orders are filled and delivered, the stronger the economic growth and the greater the potential for inflation. When orders are filled quickly, it means that producers don't have as many to fill.
The ISM manufacturing composite index and its sub-components can be subject to some monthly volatility, making the three-month average of the monthly levels more indicative of the trend.
