January 2019 Manufacturing ISM Report on Business: PMI at 56.6%

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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%, an increase of 2.3 percentage points from the December reading of 54.3%. The New Orders Index registered 58.2%, an increase of 6.9 percentage points from the December reading of 51.3%. The Production Index registered 60.5%, 6.4-percentage point increase compared to the December reading of 54.1%. The Employment Index registered 55.5%, a decrease of 0.5 percentage point from the December reading of 56%. The Supplier Deliveries Index registered 56.2%, a 2.8 percentage point decrease from the December reading of 59%. The Inventories Index registered 52.8%, an increase of 1.6 percentage points from the December reading of 51.2%. The Prices Index registered 49.6%, a 5.3-percentage point decrease from the December reading of 54.9%, 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.

Manufacturing Index Summaries

PMI

Manufacturing expanded in January, as the PMI registered 56.6%, an increase of 2.3 percentage points from the December reading of 54.3%. “This indicates growth in manufacturing for the 29th consecutive month. The PMI reversed a December decline in expansion primarily through gains in New Orders and Production,” says Fiore. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

A PMI above 42.9%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the January PMI indicates growth for the 117th consecutive month in the overall economy and the 29th straight month of growth in the manufacturing sector. “The past relationship between the PMI and the overall economy indicates that the PMI for January (56.6%) corresponds to a 4-percent increase in real gross domestic product (GDP) on an annualized basis,” says Fiore.

New Orders

ISM’s New Orders Index registered 58.2% in January, which is an increase of 6.9 percentage points when compared to the 51.3% reported for December, indicating growth in new orders for the 37th consecutive month. “Customer demand expansion strengthened compared to December and registered the strongest gain of the five PMI® subindexes,” says Fiore. A New Orders Index above 52.5%, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

Production

ISM’s Production Index registered 60.5% in January, which is an increase of 6.4 percentage points when compared to the 54.1% reported for December, indicating growth in production for the 29th consecutive month. “Production expansion continued in January, recording the strongest growth since September 2018, when the index registered 63.1%,” says Fiore. An index above 51.7%, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

Employment

ISM’s Employment Index registered 55.5% in January, a decrease of 0.5%age point when compared to the December reading of 56%. 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%,” says Fiore. An Employment Index above 50.8%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

About Institute for Supply Management

Institute for Supply Management (ISM) serves supply management professionals in more than 90 countries. Its 50,000 members around the world manage about US$1 trillion in corporate and government supply chain procurement annually. Founded in 1915 as the first supply management institute in the world, ISM is committed to advancing the practice of supply management to drive value and competitive advantage for its members, contributing to a prosperous and sustainable world. ISM leads the profession through the ISM Report On Business®, its highly regarded certification programs and the ISM Mastery Model. This report has been issued by the association since 1931, except for a four-year interruption during World War II.