US manufacturing rebounds sharply in January
ISM purchasing managers’ index recovers from a four-year low
Washington — A gauge of US manufacturing rebounded sharply in January, topping estimates and signalling growth in the beleaguered sector for the first time because July.
The Institute for Supply Management’s (ISM) purchasing managers’ index, based on a survey of manufacturers, increased to 50.9 in January from an near four-year low of 47.8, according to Monday’s data. While just above the 50 level that signals expansion, the monthly advance was the largest since mid-2013. ISM last week revised data back to 2012. Stocks, bond yields and the dollar extended gains after the report.
The gain — exceeding the median projection for 48.5 — reflected sizeable improvements in the orders and production components, while the employment gauge contracted at a slower pace. The new orders index jumped to an eight-month high of 52 and the production gauge surged 9.5 points, also the largest gain in more than six years.
The figures, along with the strongest reading for the ISM’s export index since September 2018, suggest the worst may be behind for US factories. The gain also brings the group’s measure more in line with IHS Markit’s factory index, which, unlike the ISM figure, showed expansion in manufacturing for all of past year.
Depressed by weak export markets, a trade war, cutbacks in business investment and elevated inventories relative to sales, the sector has struggled to gain traction. As a result, the services sector has fuelled the economic expansion. Sustained manufacturing growth would indicate a partial trade deal with China is providing impetus for further expansion.
Eight of 18 manufacturing industries reported growth in January, led by furniture, wood products, food and computers. Eight also reported that business shrank, including the print, apparel and electrical equipment sectors.
Risks remain, however. The ISM measure shows the sector is barely expanding and remains in a precarious position. A quickly spreading coronavirus outbreak threatens to put a damper on activity abroad and adds to uncertainty about global growth prospects, while domestic demand has cooled and Boeing’s production halt of the 737 MAX is weighing on producers.
The ISM’s factory employment gauge improved in January but remained anaemic at 46.6, suggesting hiring weakness in the sector may continue. While factories in 2019 added the fewest jobs since 2016, the labour department’s monthly employment report on Friday will offer information about hiring at the start of 2020.
An index of prices paid showed input costs increased as the gauge of supplier deliveries held above 50, suggesting shipments are slowing.
In a separate report, IHS Markit’s factory gauge eased in January to a final reading of 51.9 from 52.4 in December 2019.