ISM: PMI jumps, and so do prices

The Institute for Supply Management (ISM)'s PMI took a big leap from December to January. So did prices, but the latter is not necessarily a bad sign.

Sean Murphy -- Supply Chain Management Review, 2/1/2010

Manufacturing industries started the new year with a bang, according to the Institute for Supply Management's January survey of the manufacturing sector.

The index that ISM uses to monitor the sector, or PMI, rose 3.5 points to 58.4 percent in January. Typically, a value of 50 percent or more indicates growth. In recent months, the PMI has remained above 50, but has risen and fallen by small amounts.

Norbert Ore, chair of ISM's Manufacturing Business Survey Committee, said he was a bit surprised by how high the PMI jumped in January.

"I expected a good number, but 58.4 is a particularly strong number," he said.

Ore said he was certain that the GDP, which rose to nearly 6 percent in Q4 2009, was part of the reason.

"It's consistent, I think, with that," he said.

Ore also cited record low inventories in the same quarter as sparking the growth.

Other notable figures include individual industries' reports on growth. In December, Ore noted that 9 of 18 surveyed industries reported growth, while in January that increased to 13 of 18 industries.

"It says we're adding breadth to manufacturing," he said.

Ore also said the employment index went up 3.1 points to 53.3 percent in January. Typically, Ore said, employment figures tend to trail behind the rest of the sector, in good times and bad, and this time the slow progress means job growth, while on the rise, will be incremental as well. However, the boost in January numbers indicates companies are now less afraid to bring on new workers where needed.

"This is really signifying that in 2010 if they have a position, they'll fill it," he said.

New orders and production are also up, with production jumping 6.5 points in January to 66.2 percent.

The only thing that rose higher on the entire PMI in January, according to Ore, was the prices index, which went up 8.5 points to 70 percent.

Despite this ominous rise, Ore said he wasn't concerned about inflation and readers of the report should not, either, since "we're not showing anything in short supply."

"This is just markets trying to find their level," he said.