January 2024 ISM and S&P Global Surveys

Click image for larger version

The Institute for Supply Management‘s (ISM) monthly sentiment survey of U.S. manufacturers reflected a slower rate of contraction in the sector during January. The PMI registered 49.1%, up 2.0 percentage points (PP) from December’s reading. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. New orders rose (+5.5PP, to 52.5%) along with prices paid (+7.7%, to 52.9%); exports shrank (-4.7PP, to 45.2%) along with customer inventories (-4.4PP, to 43.7%). 

Click image for larger version

Concurrent activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- accelerated (+2.9PP, to 53.4%). Virtually all subindexes turned/stayed above breakeven -- new orders (+2.2PP, to 55.0%) and prices paid (+7.3PP, to 64.0%) perhaps being among the most important.

Click image for larger version

Respondent comments included the following –

Construction. “Transportation impacts of the Suez Canal, due to unrest in the Red Sea and the issues at the Panama Canal are impacting both costs and schedules for the transport of global goods.”

 

Changes in S&P Global‘s headline index value for manufacturing reflected “an improvement in the health of the U.S. manufacturing sector for the first time since April 2023.” Also, the services sector “signaled a stronger start to the year as business activity expanded at the fastest pace since June 2023.” Details from S&P Global’s surveys follow --

Manufacturing. Strongest improvement in manufacturing performance since September 2022.

Key findings:

• Renewed rise in new orders
• Output hampered by supply delays
• Rate of cost inflation quickens to nine-month high

 

Services. Business activity growth accelerates to seven-month high in January.

Key findings:

• Stronger growth in new orders sparks faster upturn in output
• Selling prices rise at slowest pace in over three-and-a-half years
• Business confidence at seven-month high

 

Commentary by Chris Williamson, S&P Global’s chief business economist --

Manufacturing. “Manufacturers have started the year with a spring in their step. Business optimism about the year ahead has surged to its highest since early 2022 thanks to a jump in demand. New orders are rising at a pace not seen for over a year and a half, improving especially sharply for consumer goods as households benefit from signs of an easing in inflation and looser financial conditions.

“Factories are also showing signs of restocking, with some firms buying more inputs to support higher production in the coming months. Payroll numbers are also rising again as firms seek to build extra operating capacity, boding well for the upturn to gain further strength as we head through the first quarter.

“The brighter news is tempered by signs of factory costs rising on the back of supply delays, with costlier deliveries often linked to adverse weather and recent disruptions to global shipping. These higher costs are feeding through to increased prices charged for goods by factories, which rose in January at the fastest pace since last April. Some renewed upward pressure on consumer prices could therefore appear in the months ahead if these supply-linked inflationary trends persist.”

 

Services. “The U.S. service sector started the year in a sweet spot, with output and demand growth accelerating while price pressures cooled markedly. The key driver of faster growth was the financial services sector, where looser financial conditions tied to expectations of lower interest rates spurred greater activity in January. Households are also benefiting from loosened financial conditions, driving renewed growth in consumer-facing services.

“The buoyancy of the service sector has outweighed a further lackluster performance in manufacturing, and is driving overall output higher at a rate broadly consistent with GDP rising at a 2% pace. With bad weather having curbed some economic activity in January, February should see some further improvement in overall performance.

“Business optimism about growth prospects in the service sector has likewise jumped higher, encouraging further payroll growth, albeit the latter limited by labor shortages.

“Price pressures have meanwhile shifted lower. Overall service sector input cost growth is now running at the second-lowest for over three years, helping pull selling price growth across goods and services down to a level consistent with inflation dropping materially below the Federal Reserve’s 2% target in the near future.”

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.