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Stocks extend gains after US Manufacturing Index remains strong

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Economic activity in the manufacturing sector expanded in January, and the overall economy grew for the 117th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee: “The January PMI® registered 56.6 percent, an increase of 2.3 percentage points from the December reading of 54.3 percent. The New Orders Index registered 58.2 percent, an increase of 6.9 percentage points from the December reading of 51.3 percent. The Production Index registered 60.5 percent, 6.4-percentage point increase compared to the December reading of 54.1 percent. The Employment Index registered 55.5 percent, a decrease of 0.5 percentage point from the December reading of 56 percent. The Supplier Deliveries Index registered 56.2 percent, a 2.8 percentage point decrease from the December reading of 59 percent. The Inventories Index registered 52.8 percent, an increase of 1.6 percentage points from the December reading of 51.2 percent. The Prices Index registered 49.6 percent, a 5.3-percentage point decrease from the December reading of 54.9 percent, indicating lower raw materials prices for the first time in nearly three years.

“Comments from the panel reflect continued expanding business strength, supported by strong demand and output. Demand expansion improved with the New Orders Index reading returning to the high 50s, the Customers’ Inventories Index remaining too low, and the Backlog of Orders remaining at a near-zero-expansion level. Consumption continued to strengthen, with production expanding strongly and employment continuing to expand at previous-month levels. Inputs — expressed as supplier deliveries, inventories and imports — continued to improve, but are negative to PMI® expansion. Inputs reflect an easing business environment, confirmed by Prices Index contraction.

“Exports continue to expand, but at the lowest level since the fourth quarter of 2016. Prices contracted for the first time since the first quarter of 2016. The manufacturing sector continues to expand, reversing December’s weak expansion, but inputs and prices indicate fundamental changes in supply chain constraints,” says Fiore.

Of the 18 manufacturing industries, 14 reported growth in January, in the following order: Textile Mills; Computer & Electronic Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Furniture & Related Products; Printing & Related Support Activities; Primary Metals; Chemical Products; Transportation Equipment; Machinery; Fabricated Metal Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; and Electrical Equipment, Appliances & Components. The only industry reporting contraction in January is Nonmetallic Mineral Products.

 

EMPLOYMENT

ISM®’s Employment Index registered 55.5 percent in January, a decrease of 0.5 percentage point when compared to the December reading of 56 percent. This indicates growth in employment in January for the 28th consecutive month. “Employment continued to expand, supporting production growth, but at the lowest expansion level since April 2018, when the index registered 55.2 percent,” says Fiore. An Employment Index above 50.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Nine of 18 manufacturing industries reported employment growth in January in the following order: Textile Mills; Computer & Electronic Products; Primary Metals; Transportation Equipment; Machinery; Paper Products; Electrical Equipment, Appliances & Components; Chemical Products; and Plastic & Related Products. The five industries reporting a decrease in employment in January are: Wood Products; Printing & Related Support Activities; Furniture & Related Products; Nonmetallic Mineral Products; and Fabricated Metal Products.

INVENTORIES*

The Inventories Index registered 52.8 percent in January, an increase of 1.6 percentage points from the 51.2 percent reported for December. “Inventories expanded for the 13th consecutive month, at a faster rate than the previous month and reflect growth due to improved supplier delivery performance,” says Fiore. An Inventories Index greater than 44.3 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

The 10 industries reporting higher inventories in January — listed in order — are: Furniture & Related Products; Textile Mills; Computer & Electronic Products; Miscellaneous Manufacturing; Transportation Equipment; Primary Metals; Chemical Products; Plastics & Rubber Products; Machinery; and Food, Beverage & Tobacco Products. The six industries reporting a decrease in inventories in January — listed in order — are: Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Paper Products; Petroleum & Coal Products; Nonmetallic Mineral Products; and Fabricated Metal Products.

PRICES*

The ISM® Prices Index registered 49.6 percent in January, a decrease of 5.3 percentage points from the December reading of 54.9 percent, indicating a decrease in raw materials prices for the first time in 34 months. The Prices Index has dropped 22 percentage points over the past three months. “Prices contracted for the first time since February 2016, when the index registered 38.3 points. The Business Survey Committee noted a mix of increases and decreases. This reflects price turbulence, especially in the steel markets. However, steel prices have generally returned to more normal, pre-tariff levels, including for products manufactured primarily from steel, like mechanical components and fabricated metal products. Price increases continue for electronic components, including integrated circuits and printed circuit board assemblies, and freight. Shortages continue for electrical and most electronic components,” says Fiore. A Prices Index above 52.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

Seven of the 18 industries reported paying increased prices for raw materials in January, in the following order: Textile Mills; Printing & Related Support Activities; Paper Products; Transportation Equipment; Miscellaneous Manufacturing; Computer & Electronic Products; and Food, Beverage & Tobacco Products. The seven industries reporting a decrease in prices for raw materials in January — listed in order — are: Fabricated Metal Products; Furniture & Related Products; Plastics & Rubber Products; Machinery; Chemical Products; Primary Metals; and Electrical Equipment, Appliances & Components.

ISM

 

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
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