ISM Manufacturing Drops More Than Expected in January, New Orders Dive

Andrew Klips |

The first report of February to give a view of the state of the manufacturing industry in America was not very good, although it did indicate that factory activity expanded for the 56th consecutive month.

The Institute for Supply Management showed in its monthly report its ISM manufacturing index dropped to 51.3% in January from 56.5% in December. Readings above 50 indicate that more manufacturers are expanding than contracting and vice-versa for marks below 50. Economists expected the index to only dip to 56.0% for the month. Even on the low end, economists were expecting 54 percent.

In November, the Tempe, Arizona-based company’s index was at 57 percent.

Manufacturing Down

So, in layman’s terms, the manufacturing sector expanded in January, just at a slower pace than December, which expanded at a slower pace than November. In fact, January was the lowest reading for the index since May. During 2013, the index averaged 53.9%.

Zooming in on components of the headline index, the new orders index plunged 13.2 percentage points to 51.2 percent in January from December. That’s also the lowest level since May and the biggest one-month drop since December 1980.

Other components didn’t fare very well in January either.  Of the 10 “sub-indexes,” eight were lower for the month. The production index slid 6.9 percentage points to 54.8 percent. The inventories of raw materials index fell to 44 percent from 47 percent in December, representing the lowest level since December 2012 (43%). The employment index sunk from December’s 18-month high of 55.8% to 52.3%.

Some Positives...

On the positive side, the prices index jumped 7 percentage points to 60.5, its highest level since last February. The index of supplier deliveries increased modestly from 53.7% in December to 54.3%.

Of the 18 manufacturing industries in the index, 11 reported growth, led by Plastic & Rubber Products and Primary Metals. Those reporting declines were lead by Nonmetalic Mineral Products and Petroleum & Coal Products.

The report noted that inclement weather played a role for some companies during January. Many of the respondents were sanguine in their comments, while others were more upbeat, including a Primary Metals company saying, “We continue to be busy, working six day, 24 hours a day.”

Steep Sell-Off

Wall Street isn’t showing optimism following the report, not even cautious optimism. Futures were trending modestly ahead before the opening bell, but a sell-off is happening to start this week where last week left off. The Dow Jones Industrial Average has shed 151 points in early action, the S&P 500 is lower by 17 points and the Nasdaq has lost 44 points.

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