January 2014 ISM Reports

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According to the Institute for Supply Management (ISM), expansion of economic activity in the U.S. manufacturing sector nearly stalled in January. The PMI registered 51.3 percent, a decrease of 5.2 percentage points from December's 56.5 percent (50 percent is the breakpoint between contraction and expansion). “A number of comments from the [respondent] panel cite adverse weather conditions as a factor negatively impacting their businesses in January,” said Bradley Holcomb, chair of ISM’s Manufacturing Business Survey Committee, “while others reflect optimism and increasing volumes in the early stages of 2014.”

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Except for input prices and the pace of supplier deliveries (both of which increased faster in January than in December), January’s general manufacturing sub-indices either rose more slowly or contracted more quickly than in December. Most notable is that manufacturers’ and customers’ inventories dropped further in January. This may be signaling the dramatic inventory buildup during 3&4Q2013 is coming to an end; that, in turn, could have adverse implications for 1Q2014 GDP growth. Wood Products expanded in January, as employment and inventory growth apparently more than offset the drop in new orders and shrinking customer inventories. Paper Products contracted, with only production growth bucking the trend.

Growth in the service sector nudged higher in January. The NMI registered 54.0 percent, 1 percentage point higher than December’s 53.0 percent. Except for those related to order backlogs and international trade, service sub-indices rose at a faster pace during January. “The majority of respondents’ comments reflect an improvement in business conditions,” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. “Some of the respondents indicate that weather conditions have impacted their business. There remains a bit of uncertainty about the overall economy for some of the survey respondents; however, the majority feel positive about continued economic growth.

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Among the individual service industries we track, only Construction contracted (thanks to declining new orders and employment). Real Estate expanded despite a downturn in new and backlogged orders. Positive support among Ag & Forestry’s sub-indices was more diverse.

Commodities up in price included diesel, lumber, natural gas and wood. Caustic soda was the only relevant commodity down in price. Some respondents indicated paying more for gasoline while others reported paying less.

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.