Manufacturing returns to growth to kick off 2020, reports ISM

Following five straight months of declines to end 2019, manufacturing output got back on a growth track to kick off 2020, according to data issued by the Institute for Supply Management (ISM) in its Manufacturing Report on Business, which was issued today.

The report’s key metric, the PMI, headed up 3.1%, in January, to 50.9 (a reading of 50 or higher indicates growth), on the heels of a 47.8 reading in December, which marks the lowest PMI reading going back to June 2000’s 46.3, a 48.1 reading in November and 48.8, 48.2, and 48.5, in August, September, and October, respectively. The overall economy grew in January for the 129th consecutive month. The January PMI is 0.1% above the 12-month average of 50.9.

ISM reported that eight of the 18 manufacturing sectors it tracks saw growth in January, including: Furniture & Related Products; Wood Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Chemical Products; and Fabricated Metal Products. The eight industries reporting contraction in January — listed in order — are: Printing & Related Support Activities; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Textile Mills; Transportation Equipment; Primary Metals; and Machinery.

The majority of the report’s key metrics, including the PMI, saw gains in January.

New orders, which are commonly referred to as the engine that drives manufacturing snapped a five-month stretch of declines, with a 4.4% gain to 52.0, its strongest reading going back to July 2019’s 51.1. The five-month stretch of declines prior to January was preceded by 43 consecutive months over of growth over which time it had a cumulative average of 58.5. ISM said that ten of 18 manufacturing sectors reported growth in January.

Production, at 54.3, rose 9.5% to 54.3, also halting five months of declines, its best reading since April 2019, which also came in at 54.3 Seven manufacturing sectors reported growth in January. Employment was up 1.4% to 46.6, slowing for the sixth consecutive month, and four manufacturing sectors reported growth. Supplier deliveries, at 52.9 (a reading above 50 indicates contraction), marked a 1.7% downward difference from December to January, slowing at a faster rate for the third consecutive month.

January inventories, at 48.8, slipped 0.4% to 48.8, down for the eighth consecutive month, with the report noting that growth in consumption that was driven by new order improvements drew down inventory accounts. Customer inventories headed up 2.7% to 43.8, down for the 40th consecutive month. And backlog of orders, at 45.7, increased 2.4% over December while still contracting for the ninth consecutive month.

Comments in the report submitted by ISM respondents were more positive than in the months leading up to the end of 2019. A computer & electronic products respondent said that business has picked up considerably, with suppliers working at or above full capacity, adding that tariffs remain a concern and are believed to be a factor in short supply and higher prices of electronic parts. A furniture & related products respondent said that business is above last year’s levels but below plan. A transportation equipment respondent said that there are continued signs of a slowdown in manufacturing.