The U.S. ISM manufacturing index remained strong in January 2021, remaining above the 50 Rongguan line, but increases in the orders and output sub-indexes slowed from a year earlier, and higher raw material prices from supply chain disruptions are pushing up inflationary pressures.
On Monday, February 1, the Institute for Supply Management (ISM) announced that the U.S. manufacturing ISM purchasing managers’ index fell back to 58.7 in January 2021 from a year earlier, weaker than the expected 59.9, and the December prior value was also revised slightly from 60.7 to 60.5, a more than two-year high since at least September 2018 before the revision.
This represents the eighth consecutive month that the U.S. ISM manufacturing index has been in expansionary territory and indicates the eighth consecutive month of growth for the U.S. economy after falling into contraction from March to May 2020. While January’s data remained significantly above the 53.1 average for the past 12 months, the key new orders and production sub-indices fell back from the multi-year highs set by the previous value in December, highlighting the disruption to the manufacturing sector from the Epidemic backlash late last year.
In terms of key sub-indexes.
The production index slipped 4 points to 60.7 in January and was revised down to 64.7 from 64.8 in the December prior, representing a retreat from the nearly 10-year high in January data since at least January 2011, but the eighth consecutive month in expansionary territory and the seventh consecutive month above the 60 round figure, returning to pre-epidemic levels thanks to continued factory inventory restocking and an uptick in meeting demand.
The new orders index slipped 6.4 points to 61.1 and was revised upward from 65.9 to 67.5 in December, representing the highest drop in January data since January 2004, but also the eighth consecutive month of expansion and the seventh consecutive month above 60.
The backlog orders index rose further to 59.7 from 59.1, expanding for the seventh consecutive month and setting a new high since June 2018.
The employment index rose to 52.6 from an upwardly revised previous reading of 51.7, a 3-month high since October 2020 and the next highest since June 2019, significantly above the low of 27.5 in April 2020 at the peak of the epidemic and the third Time it entered expansionary territory since August 2019. It had returned to expansion last October for the first time since July 2019, once ending a 14-month contraction streak.
The supplier delivery index increased further to a nine-month high of 68.2 from an upwardly revised prior reading of 67.7, suggesting longer shipment times.
In addition.
The price paid index rose to 82.1 in January from 77.6, the highest in nearly 10 years since April 2011, and was in expansionary territory for the eighth consecutive month and growing at a faster pace, having surged 12.2 points to a two-and-a-half-year high in December from a prior reading.
The inventory index fell further to 50.8 from a downwardly revised 51, the fourth consecutive month of expansion, but not far from the 50-year mark.
The customer inventory index fell further from 37.9 to 33.1, the lowest in 11 years since December 2009, and the 52nd consecutive month of “too low” level, along with the inventory scarcity and backlog of orders, are positive signals for future production.
The new export orders index fell from 57.5 to 54.9, continuing to fall from a new high since March 2018, but expanding for the seventh consecutive month, representing a slower recovery in overseas demand. The import index increased to 56.8 from 54.6, the seventh consecutive month of expansion, representing growth in U.S. factory demand.
Timothy Fiore, chairman of the American Institute for Supply Management’s Manufacturing Council, noted that the U.S. manufacturing sector continued to recover in January, with optimistic sentiment among surveyed industry representatives, corresponding to three optimistic statements for every one cautious comment, unchanged from December:.
“However, surveyed manufacturing plants and their suppliers continue to face constraints such as epidemic-era employee miners, short-term shutdowns to sanitize facilities, and hiring workers that will continue to dampen manufacturing growth potential.”
Analysis points to the ISM manufacturing employment data, which rose on a year-over-year basis and remained in expansionary territory, as a positive sign for the January U.S. nonfarm payrolls report released Friday, with economists generally expecting modest employment growth, supported primarily by hiring in the manufacturing sector.
But inflationary pressures on the U.S. input side are coming to the fore and are being passed on to end users and consumer goods, which financial blog Zerohedge says has to raise concerns about the Fed’s response. Chairman Powell has said that “Inflation is high to an uncomfortable degree” will consider raising interest rates.
Earlier the same day, IHS Markit statistics, based on industry surveys, “soft data” also showed that the final Markit output price sub-index rose to 60.4 in January, a 12-and-a-half-year high since July 2008. Labor shortages and surging transportation costs during the epidemic have triggered inflationary pressures, with a number of industries surveyed by ISM also citing strong demand and labor shortages.
Markit’s statistical manufacturing PMI also once again diverged from the ISM data, with the final Markit manufacturing PMI rising to 59.2 in January, a record high since data was recorded in May 2007, with the final output sub-index also hitting a new high since August 2014.
Zerohedge, a financial blog that has long questioned the “inflated” ISM and Markit data, said that epidemic-related supply chain disruptions are limiting output and pushing up prices, but the models of the two heavyweight statistical agencies show that “higher input prices equate to strong demand “, which is actually an illusion. Because the supplier delivery index is continuing to deteriorate, Markit’s index is the worst performance in history.
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