Manufacturing Economy Improves in January

Economic activity in the manufacturing sector improved in January but remained in contraction for the 15th consecutive month, the Institute for Supply Management (ISM) reported today. The Manufacturing PMI registered 49.1% in January, the highest reading since October 2022, and 2 points higher than December’s 47.1%.

“Demand remains soft but shows signs of improvement, and production execution is stable compared to December, as panelists’ companies continue to manage outputs, material inputs and labor costs,” says Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee.

Two of the six biggest manufacturing industries (Transportation Equipment; and Chemical Products) registered growth in January. The Apparel, Leather and Allied Products; and Textile Mills industries also reported growth.

The New Orders Index moved into expansion territory at 52.5%, 5.5 points higher than the 47% recorded in December, its best performance since May 2022 (55.3%).

January Production registered 50.4%, marginally higher than December’s 49.9%. “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 (43.7%),” says Fiore.

The Prices Index registered 52.9%, up 7.7 points compared to 45.2% in December, indicating an increase in raw materials prices after eight months of decreases. The Backlog of Orders (44.7%) and Employment (47.1%) Indexes were both down less than 1 percentage point from the previous month indicating sustained contraction.  

“Attrition, freezes and layoffs were used to reduce head counts. Quit rates remained at 12-month lows. 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,” says Fiore.

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. An index reading above 50% indicates economic expansion, while below 50% shows contraction.