January data indicated a positive start to the year for the U.S. manufacturing sector, with output volumes rising at a robust and accelerated pace. Job creation also picked up slightly since December, but new business growth moderated for the fourth time in the past five months. Meanwhile, falling energy and raw material costs resulted in the first overall decline in input prices since July 2012.
At 53.9 in January, the final seasonally adjusted Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) remained well above the neutral 50.0 threshold, to signal a robust improvement in overall business conditions. That said, the headline PMI was unchanged since December and the joint-lowest for a year, thereby indicating that growth momentum across the manufacturing sector has cooled from the peaks seen in the summer of 2014.
Slower new business growth was the main drag on the headline index in January. Survey respondents noted that improving economic conditions had boosted sales at the start of the year, but export demand remained subdued. There were also reports from investment goods producers that weaker spending patterns among clients in the oil and gas sector had contributed to weaker new business growth.
Despite a moderation in the pace of new order gains, the latest survey data highlighted an upturn in output growth from December’s 11-month low. Moreover, the increase in manufacturing production during January was the strongest for three months.
Increased production schedules and sustained rises in new work during recent months contributed to a solid pace of job creation across the manufacturing sector in January. Payroll numbers have now risen for 19 consecutive months.
Manufacturers indicated relatively cautious inventory policies at their plants during the latest survey period. Stocks of finished goods and pre-production inventories both increased only marginally in January, while growth of input buying was the least marked for 12 months.
The latest survey indicated a reduction in manufacturers’ average cost burdens for the first time in two-and-a-half years. Anecdotal evidence attributed the slight fall in input costs to lower fuel, energy and commodity prices at the start of 2015. Meanwhile, average prices charged by U.S. manufacturing companies increased marginally, but the rate of inflation was only slightly faster than the seven-month low registered in December.
Medium sized manufacturers (100-499 employees) registered the strongest overall improvement in business conditions during January. Moreover, the rate of job creation among this group accelerated to its second-fastest since early 2012.
By market group, intermediate goods producers posted the strongest overall upturn in business conditions at the start of the year, closely followed investment goods producers. Meanwhile, the slowest improvement in operating conditions was recorded by manufacturers of consumer goods in January.
The January PMI® registered 53.5 percent, a decrease of 1.6 percentage points from December’s seasonally adjusted reading of 55.1 percent. The New Orders Index registered 52.9 percent, a decrease of 4.9 percentage points from the seasonally adjusted reading of 57.8 percent in December. The Production Index registered 56.5 percent, 1.2 percentage points below the seasonally adjusted December reading of 57.7 percent. The Employment Index registered 54.1 percent, a decrease of 1.9 percentage points below the seasonally adjusted December reading of 56 percent. Inventories of raw materials registered 51 percent, an increase of 5.5 percentage points above the December reading of 45.5 percent. The Prices Index registered 35 percent, down 3.5 percentage points from the December reading of 38.5 percent, indicating lower raw materials prices in January relative to December. Comments from the panel indicate that most industries, but not all, are experiencing strong demand as 2015 kicks off. The West Coast dock slowdown continues to be a problem, negatively impacting both exports and imports as well as inventories.
Of the 18 manufacturing industries, 14 are reporting growth in January in the following order: Primary Metals; Wood Products; Printing & Related Support Activities; Miscellaneous Manufacturing; Fabricated Metal Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Paper Products; Transportation Equipment; Chemical Products; Machinery; Food, Beverage & Tobacco Products; Computer & Electronic Products; and Furniture & Related Products. The two industries reporting contraction in January are: Textile Mills; and Nonmetallic Mineral Products.
- ISM®’s Customers’ Inventories Index registered 42.5 percent in January, a decrease of 2 percentage points from December when customers’ inventories registered 44.5 percent. January’s reading indicates that customers’ inventories are considered to be too low, and lower than December.
- ISM®’s New Export Orders Index registered 49.5 percent in January, which is 2.5 percentage points lower than the 52 percent reported in December. January’s reading reflects a month of contraction in the level of exports, following 25 consecutive months of growth in new export orders.