January data pointed to an improvement in business conditions across the U.S. manufacturing sector, with output and new orders both rising at faster rates than those seen at the end of 2015. However, manufacturers remained cautious in terms of their staff hiring and inventory levels in January, reflecting heightened uncertainty about the economic outlook. Some firms noted that the strong dollar continued to act as a growth headwind, especially in terms of export sales.
At 52.4 in January, the final seasonally adjusted Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) was up slightly from December’s 38-month low of 51.2. The headline index signalled a moderate improvement in overall business conditions at the start of this year, but the latest reading was still the second-lowest since October 2013.
Production volumes were reported to have increased at a solid pace in January, with the rate of expansion accelerating from December’s recent low. Reports from survey respondents cited improved spending patterns, in particular from domestic clients. Reflecting this, latest data pointed to a rebound in new business growth to its fastest for three months.
Anecdotal evidence suggested that improving U.S. economic conditions continued to boost new business volumes, although a number of manufacturers also noted that reduced capital spending across the energy sector had weighed on demand. At the same time, new export sales increased only marginally in January, with the rate of expansion slower than that recorded for total new work.
Payroll numbers expanded again at the start of the year, but the rate of job creation eased since December and was slightly slower than seen during 2015 as a whole. Some firms indicated that caution about the business outlook had held back staff hiring in January. Meanwhile, manufacturers also reported a slight drop in pre-production inventories and broadly unchanged stocks of finished goods at their plants. Growth of input buying also remained subdued, with the latest rise in purchasing activity the second-slowest recorded over the past two years.
Average cost burdens decreased for the fifth consecutive month in January, although the latest reduction was only marginal. Survey respondents noted that lower commodity prices had generally offset upward pressure on costs from higher salary payments. Factory gate charges nonetheless increased moderately in January, with the latest rise in output prices the fastest since August 2015.
The January PMI® registered 48.2 percent, an increase of 0.2 percentage point from the seasonally adjusted December reading of 48 percent. The New Orders Index registered 51.5 percent, an increase of 2.7 percentage points from the seasonally adjusted reading of 48.8 percent in December. The Production Index registered 50.2 percent, 0.3 percentage point higher than the seasonally adjusted December reading of 49.9 percent. The Employment Index registered 45.9 percent, 2.1 percentage points below the seasonally adjusted December reading of 48 percent. Inventories of raw materials registered 43.5 percent, the same reading as in December. The Prices Index registered 33.5 percent, the same reading as in December, indicating lower raw materials prices for the 15th consecutive month. Comments from the panel indicate a mix ranging from strong to soft orders, as eight of our 18 industries report an increase in orders, and seven industries report a decrease in orders.
From Doug Short: