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ISM: Strong demand, output support further expansion

Feb. 7, 2019
“Demand expansion improved with the New Orders Index reading returning to the high 50s, the Customers’ Inventories Index remaining too low, and the Backlog of Orders remaining at a near-zero-expansion,” ISM said.

Economic activity in the manufacturing sector expanded in January, and the overall economy grew for the 117th consecutive month, the nation’s supply executives said in the latest Manufacturing ISM Report On Business.

“Comments from the panel reflect continued expanding business strength, supported by strong demand and output,” said Timothy R. Fiore, chair of the ISM Business Survey. “Demand expansion improved with the New Orders Index reading returning to the high 50s, the Customers’ Inventories Index remaining too low, and the Backlog of Orders remaining at a near-zero-expansion level.

“Consumption continued to strengthen, with production expanding strongly and employment continuing to expand at previous-month levels. Inputs—expressed as supplier deliveries, inventories and imports—continued to improve, but are negative to PMI expansion. Inputs reflect an easing business environment, confirmed by Prices Index contraction.”

The January PMI registered 56.6%, an increase of 2.3 percentage points from the December reading of 54.3%.

Other highlights from the report:

  • The New Orders Index registered 58.2%, compared to the December reading of 51.3%.
  • The Production Index registered 60.5%, compared to the December reading of 54.1%.
  • The Employment Index registered 55.5%, compared to the December reading of 56%.
  • The Supplier Deliveries Index registered 56.2%, compared to the December reading of 59%.
  • The Inventories Index registered 52.8%, compared to the December reading of 51.2%.
  • The Prices Index registered 49.6%, compared to the December reading of 54.9 percent, indicating lower raw materials prices for the first time in nearly three years.

Also, exports continue to expand, but at the lowest level since the fourth quarter of 2016, and prices contracted for the first time since the first quarter of 2016, ISM said.

Transportation equipment, machinery, primary metals and fabricated metal products were among 14 manufacturing industries reporting growth in January.

“The manufacturing sector continues to expand, reversing December’s weak expansion, but inputs and prices indicate fundamental changes in supply chain constraints,” Fiore said.

Here are some selected comments from respondents:

-- “Unlike in the last few years, we are experiencing a first quarter slowdown.” (Paper Products)

-- “Steady supply and production environment.” (Computer & Electronic Products)

-- “Concerns about oil prices are fueling questions of how strong the economy will be the first half of 2019.” (Chemical Products)

-- “Overall, business continues to be good; however, margins are being squeezed.” (Transportation Equipment)

-- “The federal government shutdown is impacting our ability to get new products launched. All wines need TTB [Alcohol and Tobacco Tax and Trade Bureau] approval. We are reforecasting accordingly.” (Food, Beverage & Tobacco Products)

-- “We continue to enjoy the benefits of a strong general economy. We are busy and maintain a backlog of sales orders.” (Machinery)

-- “Incoming orders have been steady, but we're starting to see signs of slowing going into February and March.” (Furniture & Related Products)

-- “Business conditions are good, and our demand and production are tracking to our forecasted growth levels for the year.” (Miscellaneous Manufacturing)

-- “Going to be a very strong spring. Business levels will be just as good [compared to] the same time frame in 2018.” (Fabricated Metal Products)

-- “Steel tariffs continue to put upward pressure on prices of downstream materials.” (Petroleum & Coal Products)

-- “January is off to a good start versus a lower November and December. We are ahead of both plan and January 2018 performance.” (Plastics and Rubber Products)

-- “Sales nationally appear to be on target for 2019 and slightly ahead of 2018.” (Nonmetallic Mineral Products)