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Manufacturing activity has a strong start to 2018, reports ISM

The report’s key metric, known as the PMI, was 59.1 (a reading of 50 or higher indicates growth) in January, which was down 0.2% from December’s reading. This marks the 17th straight month that the PMI has grown, with the overall economy growing for the 104th consecutive month.

By ·
By ·

Manufacturing activity got off to a decent start in 2018, according to the Manufacturing Report on Business issued today by the Institute for Supply Management (ISM).

The report’s key metric, known as the PMI, was 59.1 (a reading of 50 or higher indicates growth) in January, which was down 0.2% from December’s reading. This marks the 17th straight month that the PMI has grown, with the overall economy growing for the 104th consecutive month. The January PMI is 1.4% ahead of the 12-month average of 57.7, and the January PMI, despite its slight decline, is ahead of rolling three-month average of 58.9.

ISM said that 14 of the 18 manufacturing industries reported growth in January, including: : Machinery; Fabricated Metal Products; Petroleum & Coal Products; Primary Metals; Nonmetallic Mineral Products; Computer & Electronic Products; and Transportation Equipment. The six industries reporting a decrease in employment in January — listed in order — are: Furniture & Related Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Chemical Products; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products.

While the report’s key metrics each were down sequentially from January to December, they each remained on the right side of growth.

New orders, which are commonly known as the engine that drives manufacturing, dipped 2.0% to a still-strong 65.4, while growing for the 25th consecutive month. This followed December’s 65.4, which stands as the highest reading going back to December 2004’s 66.3, with 13 of 18 manufacturing sectors reporting growth in January. Eighty seven percent of manufactured GDP grew in new orders for the month, too.

Production was off slightly in January, falling 0.7% to 64.5, while still growing for 17 straight months and hit its second-highest tally since January 2011, with December’s 65.2 being the highest, and 11 sectors reported production growth for the month.

Employment was down 3.9% to 54.2 while still growing for the last 16 months, which brought the PMI down. ISM said that 37% of manufactured GDP saw employment levels decline, with 15% of that figure due to chemical products, which are not a large employer. Another 12% was in the food and beverage sector, which is a large employer, and whose biggest months are in November and December for the holidays and is then relatively slow until Easter.

Comments submitted in the report by ISM member respondents were largely positive. A machinery respondent pointed to reports of additional business, due to the recent reduction of tax rates, and a furniture & related products respondent noted that the usual winter slowdown has not occurred, with his company very busy with new orders. A transportation equipment respondent said business remains steady, adding that with several key programs to begin ramping up in the industry, the 2018 outlook looks good.

“New orders in January were the second highest number since December 2004, when it was at 66.3,” said Tim Fiore, chair of the ISM’s Manufacturing Business Survey Committee, “and January’s 67.4 was the highest number. We have actually had two really decent run-ups since 2000, with 2004 being the strongest and the longest. Demand is really good, and we made some progress on customer inventories [up 2.7% to 45.6], but backlog of orders went up, too [up 1.3% to 56.2], so that is good. We are going into February with some good momentum.”

Addressing the 64.5 production number, Fiore said that it was very good, especially when considering January is typically a very slow month, with the first month usually being what he called a “dead week,” coupled with the same situation for the last week of December, as well as seasonality and weather factors that come into play.

Supplier deliveries in January increased 1.9% from December to 59.1 (a reading above 50 indicates contraction), which Fiore said was surprising in that the first week of January is often slow, coupled with demand slow to pick up early in the month. Inventories saw a 3.8% gain to 52.3, which is a byproduct of post-December 31 items being shipped.

“If you ask our panel if their inventories are higher in January than December, the answer is yes,” he said. “It does not say it is the right inventory, it just says that it is inventory. If you take out the supplier delivery issues and one-off inventory issues, the PMI number probably would have been a little lower by .02 to .03 maybe. It is still a fantastic month over all for January.”

Michael Montgomery, US Economist, IHS Markit, was bullish about the current state of manufacturing in a research note.

“US manufacturing ended 2017 in solid shape, with everything in position for further strength over at least the first half of 2018, and US tax cuts will only help keep the ball rolling. The sole blemish on this rosy outlook is that commodity prices are climbing. When manufacturers stare at robust sales gains and rising costs they only see the sales gains, and recent weakness in the greenback means US manufacturers need not worry about foreign competitors when they try to push those higher costs into sales prices. Manufacturing is so solid now that in a few years it may be remembered as the good old days.”


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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