In its monthly Manufacturing Report on Business, ISM said that the report’s key metric, the PMI, at 57.6 (a reading of 50 or higher indicates growth), was down 1.2% compared to December’s 58.8. This marks the 20th consecutive month of growth, at a slower rate, coupled with January also representing…
January manufacturing output started 2022 on a solid growth path despite coming in slightly lower than December’s pace.
In its monthly Manufacturing Report on Business, ISM said that the report’s key metric, the PMI, at 57.6 (a reading of 50 or higher indicates growth), was down 1.2% compared to December’s 58.8. This marks the 20th consecutive month of growth, at a slower rate, coupled with January also representing the 20th consecutive month of growth for the overall economy.
The 57.6 January PMI reading represents the lowest reading over the last 12 months, with March’s 64.7 representing the highest reading.
ISM reported that 14 manufacturing sectors saw gains in January, including: Apparel, Leather & Allied Products; Furniture & Related Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Machinery; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Transportation Equipment; Primary Metals; Fabricated Metal Products; Computer & Electronic Products; Chemical Products; Petroleum & Coal Products; and Plastics & Rubber Products. The only industry reporting a sequential decline is Paper Products. ISM noted that each of the six biggest manufacturing sectors— Machinery; Food, Beverage & Tobacco Products; Transportation Equipment; Computer & Electronic Products; Chemical Products; and Petroleum & Coal Products—registered moderate to strong growth in January.
The report’s key metrics were mostly down in January.
New orders, which are commonly referred to as the engine that drives manufacturing, slipped 3.1%, to 57.9, growing, at a slower rate, for the 20th consecutive month, with five of the six largest manufacturing sectors expanding at moderate-to-strong levels. January was only the second time in the last 19 months in which new orders did not eclipse a reading of 60.
Production—at 57.8—decreased 1.6%, growing, at a slower rate, for the 20th consecutive month, with four of the top six manufacturing sectors growing at moderate-to-strong levels. ISM said that shortages of raw materials and labor, due to Omicron-fueled unplanned absenteeism, represents a constraint to production growth.
Employment—at 54.5—eked out a 0.6% increase, growing, at a faster rate, for the fifth consecutive month. ISM said that nine manufacturing sectors saw growth in January, with five of the six largest manufacturing sectors expanding.
Other notable metrics included:
Supplier deliveries—at 64.6 (a reading above 50 indicates contraction)—slowed, at a slower rate, for the 71st consecutive month, with the delivery performance of suppliers to manufacturing organizations again slower in January;
Backlog of orders—at 56.4—fell 6.4%, growing, at a slower rate, for the 19th consecutive month;
Inventories—at 53.2—decreased 1.4%, growing, at a slower rate, for the sixth consecutive month, and customer inventories—at 33.0—rose 1.3, trending too low, at a slower rate, for the 64th consecutive month; and
Prices—at 76.1—rose 7.9, increasing, at a faster rate, for the 20th consecutive month
Comments from ISM member panelists in the report reflected many of the ongoing manufacturing challenges that have been seen over the last several months, including supply chain issues, labor retention challenges, and rising costs, among others.
“We are experiencing massive interruptions to our production due to supplier COVID-19 problems limiting their manufacturing of key raw (materials) like steel cans and chemicals,” said a Chemical Products respondent.
A Food, Beverage & Tobacco Products respondent said his suppliers are having difficulty meeting scheduled releases as their suppliers’ experience delays and shortages, so lead times and inventories are struggling, resulting in lost production.
Tim Fiore, Chair of the ISM’s Manufacturing Business Survey Committee said in an interview that it was a bit of a disappointment that the PMI did not top a reading of 60, but that came with the caveat that the PMI had never gone this long above 60 (as it has for the majority of the last 12 months) over the last 20 years.
“The PMI running in the 57-to-59 range is great and not something to be concerned about,” he said. “The increase in prices is more of a timing issue and has to do with the new prices that were negotiated in September and October and went into effect on January 1. The supplier deliveries number could have gone a lot higher but there was an extreme amount of absenteeism in the factories, not only with support labor. That probably impacted new order levels and also output.”
And he said that the production reading was not inspiring, given all of the backlog and new orders, there was an expectation it would hit, or top, 60.
“I think the big disappointment here is backlog of orders and is a bit of a surprise,” he said. “I am not quite sure what is happening there. We need to wait for February’s data to have a final determination on that. When you look at it, what it says is that new order levels were such that backlog got chewed it. That may very well be, but I think the new order level is the one that should go up, and that will bring the backlog up, too.”
Should the PMI stay in its current range in the coming months, Fiore explained that would be fine, noting that it is well within the parameters of a typical 34-to-36 month cycle, or longer, as the current one is 20 months in and there could be another 20 to go.
“That would be good news and bring us to the end of 2023,” he said. “That comes with the hope that we are finally past the pandemic, too."
For February, Fiore said he would expect the Supplier Deliveries number to trend back up, as part of a carryover effect from January, adding he is hopeful the inventory number gets back to 55, but that may not happen until March. Employment is also positioned to head up, as hiring was better in January than December, with production potentially into the 60s, off of the headwinds of supplier deliveries, while new orders could head up to around 59.