ISM Manufacturing Index: Business Conditions Contracted Slightly in January

Today the Institute for Supply Management published its monthly Manufacturing Report for January. The latest headline Purchasing Managers Index (PMI) was 59.1 percent, a decrease of 0.2 percent from a revised 59.3 the previous month. Today's headline number was above the Investing.com forecast of 58.8 percent. Revisions were made going back to February 2017.

Here is the key analysis from the report:

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 59.1 percent, a decrease of 0.2 percentage point from the seasonally adjusted December reading of 59.3 percent. The New Orders Index registered 65.4 percent, a decrease of 2 percentage points from the seasonally adjusted December reading of 67.4 percent. The Production Index registered 64.5 percent, a 0.7 percentage point decrease compared to the seasonally adjusted December reading of 65.2 percent. The Employment Index registered 54.2 percent, a decrease of 3.9 percentage points from the seasonally adjusted December reading of 58.1 percent. The Supplier Deliveries Index registered 59.1 percent, a 1.9 percentage point increase from the seasonally adjusted December reading of 57.2 percent. The Inventories Index registered 52.3 percent, an increase of 3.8 percentage points from the December reading of 48.5 percent. The Prices Index registered 72.7 percent in January, a 4.4 percentage point increase from the December reading of 68.3 percent, indicating higher raw materials prices for the 23rd consecutive month. Comments from the panel reflect expanding business conditions, with new orders and production maintaining high levels of expansion; employment expanding at a slower rate; order backlogs expanding at a faster rate; and export orders and imports continuing to grow faster in January. Supplier deliveries continued to slow (improving) at a faster rate. Price increases occurred across all industry sectors. The Customers’ Inventories Index indicates levels are still too low. Capital expenditure lead times increased 8 percent during the month of January."

Here is the table of PMI components.

The chart below shows the Manufacturing Composite series, which stretches back to 1948. The eleven recessions during this time frame are indicated along with the index value the month before the recession starts.

ISM Manufacturing

For a diffusion index, the latest reading of 59.1 is its seventeenth consecutive month of expansion. What sort of correlation does that have with the months before the start of recessions? Check out the red dots in the chart above.