ISM Manufacturing Index Continues Contraction in January

This article was originally written by Doug Short. From 2016-2022, it was improved upon and updated by Jill Mislinski. Starting in January 2023, AP Charts pages will be maintained by Jennifer Nash at Advisor Perspectives/VettaFi.

This morning the Institute for Supply Management (ISM) published its monthly Manufacturing Report for January. The latest headline purchasing managers index (PMI) was 47.4, down 1.0 from the previous month and in contraction territory. This marks the third consecutive month in contraction territory after a 29-month period of growth dating back to June 2020. Today's headline number was below the forecast of 48.0.

Here is an excerpt from the report:

Fiore continues, “The U.S. manufacturing sector again contracted, with the Manufacturing PMI® at its lowest level since the coronavirus pandemic recovery began. With Business Survey Committee panelists reporting softening new order rates over the previous nine months, the January composite index reading reflects companies slowing outputs to better match demand in the first half of 2023 and prepare for growth in the second half of the year. Demand eased, with the (1) New Orders Index contracting strongly, (2) New Export Orders Index still below 50 percent but improving, (3) Customers’ Inventories Index contracting slightly, a positive for future production and (4) Backlog of Orders Index recovering for a second month, but still in strong contraction. Output/Consumption (measured by the Production and Employment indexes) was negative, with a combined 0.8-percentage point downward impact on the Manufacturing PMI® calculation. The Employment Index remained just above 50 percent and the Production Index logged a second month in contraction territory. Panelists’ companies are indicating that they are not going to substantially reduce head counts as they are positive about the second half of the year. Inputs — defined as supplier deliveries, inventories, prices and imports — continue to accommodate future demand growth. The Supplier Deliveries Index indicated faster deliveries, and the Inventories Index expanded at a slower rate as panelists’ companies manage the total supply chain inventory. The Prices Index contracted for the fourth consecutive month, but at a slower rate."