Economic activity in the US manufacturing sector moderated for a third straight month, while the overall economy contracted for a second straight month in January. Institute for Supply Management (ISM).
The ISM on Wednesday (Feb 1) released the ISM report on manufacturing business for January showing that the Purchasing Managers’ Index (PMI) fell 1 percentage point from December to 47.4%. A reading below 50% indicates that the manufacturing sector is contracting, while a reading below 48.7% indicates the overall economy is contracting.
“The past relationship between the manufacturing PMI and the overall economy indicates that the manufacturing PMI for January (47.4%) corresponds to a -0.5% change in real gross domestic product (GDP) on an annual basis,” said Timothy Fiore, chairman of the ISM Manufacturing Business Survey Committee.
According to the January report, new orders and production contracts. Contract backlog. Expedited supplier delivery. Stocks of raw materials have increased. The inventory of customers was very low. The price has dropped. Exports and imports have decreased.
“The US manufacturing sector contracted again, with the manufacturing PMI at its lowest level since the coronavirus pandemic began to recover,” Fiore said. “With Business Survey Committee panelists reporting a slowdown in the rate of new orders over the past nine months, January’s composite index reading reflects that companies cut output to better match demand in the first half of 2023 and are poised for growth in the second half of the year.”
The report shows that panelists’ companies do not plan to significantly reduce headcount as they are positive about the second half of the year.
“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. Meanwhile, panellist firms are trying to maintain head-count levels in an expected slower first half in preparation for a stronger performance in the second half of 2023. Manufacturing contracted to 86 percent of gross domestic product (GDP), down from 85% in December. However, a composite PMI count for 26% of sector industries was below 45% in January (a strong indication of an industry slowdown), down from 35% the previous month.”
The following two manufacturing industries reported growth in January: miscellaneous manufacturing and transportation equipment.
According to the report, multiple respondents reported cutting prices and reducing demand. Still, some industries are noticing the power of business.
In the computer and electronic products industry, one respondent said, “Business is still strong, but we are starting to soften in some price areas. And lead times seem to be improving.”
A respondent from the chemical products industry said, “Conditions are reasonable. Sales are a little better than planned. Cost pressures are easing for most products. There have been very few supply disruptions so far this year, and are expected in the short term. The crystal ball for the remainder of 2023 is somewhat remains a blur.”
A respondent in the food, beverage and tobacco industry said, “Sales are down (expected) at the beginning of the year. The sales department’s forecast is showing lower sales than we expected. If this is true, then the inventory levels will increase slightly in the next month and a half.”
A respondent from the transportation equipment industry said, “Supply chain issues continue to plague our production schedule. Shipping from our overseas suppliers is contributing to delays. Lead times for critical electronics, gaskets, sealants and specialty steels have doubled.”
A machinery industry respondent said, “Strong ag demand continues to drive high demand for parts. Large construction/off-highway original equipment manufacturers also have strong demand. Continued capacity constraints along the supply base.
In the electrical equipment, machinery and components industry, one respondent noted that demand in some business segments is softening globally. But lead times for many materials have improved, and costs have been moderated.
A respondent in the fabricated metal products industry said, “The outlook for the first half of 2023 looks very soft. Demand for our products has taken a sharp downward turn. Our inventory is high as well as our customers’. It seems everyone is preparing for a downturn.”
A miscellaneous manufacturing respondent said, “Customers are being quite aggressive in reducing prices, much more than the price relief we’re actually getting from our suppliers.”
A respondent in the primary metals industry said new orders had recently moderated, while a respondent in the nonmetallic mineral products industry said, “Industrial construction is strong. Commercial construction is slow.”
