The contraction in the manufacturing economy deepened last month, the Institute for Supply Management said today.
The Tempe, Ariz.-based group’s manufacturing index, known as the PMI, slipped to 47.4 percent in January. That was down from 48.4 percent the month before.
An index reading above 50 percent indicates economic expansion, while below 50 percent shows contraction. The index has been in negative territory for three consecutive months. The PMI has averaged 52.7 percent the past 12 months.
“There is clear evidence of demand softening,” Timothy R. Fiore, chair of ISM’s Manufacturing Business Survey Committee, said on a conference call. A decline in new orders is affecting production plans for manufacturers, he said.
The index is based on a survey of executives in 18 industries. The PMI is considered a leading economic indicator and a barometer of where manufacturing is headed.
ISM in December said it expects a slow first half of 2023 with business picking up in the year’s second half.
“We knew the first half would be a bit of a struggle,” Fiore said. “I don’t know if we’ve hit bottom yet.”
In January, only two industries reported economic growth: miscellaneous manufacturing and transportation equipment. Fifteen reported contraction, including wood products, textiles, primary metals, machinery, and fabricated metal products.
Manufacturing is enduring a decline in new orders.
ISM’s New Orders Index fell to 42.5 percent last month, down from 45.1 percent in December. None of the 18 industries reported a gain in orders, with 17 reporting declines.
“New order rates remain depressed due to buyer and supplier disagreements regarding price levels and delivery lead times,” Fiore said. “These should be resolved by the second quarter.”
The group’s Production Index fell to 48 percent in January, down from 48.6 percent in December. One industry – computers and electronics products – reported an increase in output. Fourteen reported production cuts.
The organization’s Employment Index remained in positive territory at 50.6 percent last month, compared with 50.8 percent the month before. Five industries reported adding workers, including nonmetallic mineral products, machinery, transportation equipment, and fabricated metal products.
“It appears companies are trying to retain their workforces through half one in anticipation of a stronger half two,” Fiore said.
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