January 2013 ISM Reports

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Manufacturing expanded notably in January, with the Institute for Supply Management’s (ISM) PMI registering 53.1 percent, an increase of 2.9 percentage points from December's seasonally adjusted reading of 50.2 percent (50 percent is the breakpoint between contraction and expansion). “Manufacturing is starting out the year on a positive note,” observed Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, “with all five…component indexes -- new orders, production, employment, supplier deliveries and inventories -- registering above 50 percent in January.” Respondent quotes were less optimistic than might be expected from the PMI headline, however. For example, one Wood Products respondent said, "The general theme developing in our industry is that we can move suitable volumes. However, profit margin is elusive." 

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The service sector slipped slightly in January. The non-manufacturing index (now known simply as the “NMI”) registered 55.2 percent, 0.5 percentage point lower than December’s 55.7 percent. “Respondents' comments are mixed about the economy and business conditions,” said Anthony Nieves, chair of ISM’s Non-manufacturing Business Survey Committee; “however, the majority of respondents are optimistic about the overall direction.” Comments from a couple of relevant industries illustrate Nieves’ claim: "Business is good, but we find ourselves in a very competitive environment," said one Construction respondent. “No change in business levels since prior month,” wrote a Real Estate, Rental & Leasing respondent, “but optimism growing that commercial and industrial construction will experience growth in 2013.” 

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Wood Products reported slower activity, with a majority of respondents indicating fewer new or backlogged orders, higher input prices and lower production. Paper Products was unchanged overall. Real Estate expanded, but the contributing change was limited to larger order backlogs. Construction exhibited growth in new and export orders, and employment. Ag & Forestry mimicked Construction, but also reported new export orders.

Prices increased for a variety of commodities, including diesel and gasoline; pine, spruce and treated lumber; corrugated boxes/packaging; and caustic soda. Paper was the only relevant commodity down in price. No relevant commodities were in short supply.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.