January starts 2017 manufacturing levels off on the right foot, reports ISM

Based on data in the Institute for Supply Management’s (ISM) monthly Manufacturing Report on Business, manufacturing activity picked up in 2017 where 2016 left off: in a position of strength.

The January PMI, the index used by the ISM to measure growth, was up 1.5 percent over December at 56.0 (a reading of 50 or higher indicates growth) and its highest reading since November 2014’s 57.6, which marked the fifth straight month of growth. This marks a new 12-month high, with the January PMI up 3.9 percent over the 12-month average of 52.1 and the over all economy growing for the 92nd month in a row.

ISM said that of the 18 manufacturing sectors contributing to the report, 12 reported growth in January, including Plastics & Rubber Products; Miscellaneous Manufacturing; Apparel, Leather & Allied Products; Paper Products; Chemical Products; Transportation Equipment; Food, Beverage & Tobacco Products; Machinery; Petroleum & Coal Products; Primary Metals; Fabricated Metal Products; and Computer & Electronic Products. The five industries reporting contraction in January are: Nonmetallic Mineral Products; Wood Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; and Printing & Related Support Activities.

Including the PMI, each of the report’s four key metrics were up in January.

New orders, which are viewed as the engine driving manufacturing, were up 0.1 percent to 60.4, growing for the fifth straight month and turning in its best reading since November 2014’s 63.5. Production posted a 2.0 percent gain to 61.4 and was also up for the fifth consecutive month en route to its best reading since November 2014, when it was at 62.8. And employment saw a 3.3 percent increase at 56.1, up for the fourth month in a row.

Comments submitted by ISM member respondents featured in the report pointed to an over all positive mindset early into 2017. A chemical products respondent said that demand is very steady to start the year. And a food, beverage and tobacco products respondent said that the economic outlook looks stable and no current effects of geopolitical changes appear to be penetrating market conditions.

“We are starting 2017 on a high note,” said Brad Holcomb, chair of the ISM’s Manufacturing Business Survey Committee. “The numbers are lining up to say the sector has built on the momentum [in recent months] and it is continuing and even accelerating in real terms and also in anticipation of a favorable business climate.”

Areas in which Holcomb said the business climate could be a boon for manufacturers included lowering the corporate tax rate and reducing business regulations.

“In my own personal business experience over the years, regulations were intense and consumed a lot of corporate resources up and down the elevator, if you will,” he noted. “To be able to reduce that is viewed as really good news.”

As for where manufacturing heads from here, Holcomb said things appear to be on a pretty steady path and continuing solid momentum, barring any unforeseen changes or events, as was evidenced by the report’s ISM member comments.

January prices climbed 3.5 percent to 69.0, growing for the last 11 months, and backlog of orders contracted slightly, remaining below 50 at 49.5 (up 0.5 percent from December). Inventories also contracted for the 19th straight month at 48.5.