February 1, 2024

The Institute for Supply Management’s index of conditions in the manufacturing sector rose 2.0 points in January to 49.1 after having climbed 1.0 point in December.  After falling steadily last year the index has begun to turn upwards.   A level of 50.0 is the breakeven point for expansion in the manufacturing sector.  The manufacturing sector continued to contract in January but at the slowest pace in two years.  While 50.0 is the breakeven point for the manufacturing sector, a level of 48.7 is generally associated with a recession for the economy as a whole.   A level of 49.1 is associated with a GDP increase of 1.9%.

The ISM organization does a similar survey for the services sector.  The ISM index of conditions in the service sector for January will be released on Monday, February 5.

The Institute for Supply Management Chair for the Survey Committee Timothy Fiore said, “The U.S. manufacturing sector continued to contract, though at a marginal rate compared to December. Demand moderately improved, output remained stable and inputs are accommodative.

  • “The start of 2024 looks good. Sales are above expectations, and costs are mostly stable. A few commodities are up in cost due to supply shortages. Many previously short commodities market positions have corrected themselves. There is a real short-term increase in the cost of international freight.” [Chemical Products]
  • “The commercial vehicle market appears to be retracting a bit in 2024 compared to last year. Forecast sales have decreased slightly in most product segments, with only limited growth related to customers’ competitive sourcing and moves to new technology. Most supply chains, including for semiconductors, have stabilized, with the only major escalation now being transit through the Red Sea.” [Transportation Equipment]
  • “Business continues to stabilize. Cash flow will be tight in 2024.” [Food, Beverage & Tobacco Products]
  • “U.S. economic outlook is affecting customer orders, and the current backlog is quite low compared to past quarters. Waiting on potential improvements from the CHIPS and Science Act.” [Computer & Electronic Products]
  • “December sales were very strong but slower for the first part of January, as was expected. We expect to see steady sales going forward, if the (U.S. Federal Reserve) continues to hold rates and suggests a rate cut in the future.” [Machinery]
  • “Good start to the year. We had budgeted a 3.5-percent increase over 2023. We expect it to be a challenging year. Currently, orders are positive in our automotive OEM and automotive aftermarket business. Our industrial business sector is looking weak at the moment. Still expect to achieve budget forecasts through the first quarter. (We) feel January is running high for automotive because at the end of December, many OEMs cancelled the last few weeks of orders to reduce inventory levels.” [Fabricated Metal Products]
  • “Order backlog, which was at historically high levels, is diminishing due to supply chain improvements and slight slowdown of orders.” [Miscellaneous Manufacturing]
  • “Demand continues to be slow. Reduction from the second half of 2023 has continued into this year. We are adjusting production to match demand.” [Electrical Equipment, Appliances & Components]
  • “Current industry conditions are positive; however, a note of caution as we see potential headwinds with downward price movements in the coming months.” [Primary Metals]
  • “Remarkable slowdown in business in December. January has picked up, but not to previous-year levels.” [Textile Mills]

The orders component jumped 5.5 points in January from 47.0 to 52.5.  This is the first time orders have risen since September 2022. Fiore noted that “Of the six largest manufacturing sectors, three (Chemical Products; Transportation Equipment; and Fabricated Metal Products) reported increased new orders. The index in January recorded its best performance since May 2022 (55.3 percent),”

The production component rose 0.5 point in January to 50.4 after increasing 1.4 points in December.  Fiore noted that, “Of the six largest manufacturing sectors, three (Chemical Products; Transportation Equipment; and Fabricated Metal Products) reported increased new orders. The index in January recorded its best performance since May 2022 (55.3 percent),”   An index level of 52.2 is generally consistent with an increase in industrial production.  Thus, industrial production is likely to decline in January.

The delivery performance of suppliers to manufacturing organizations rose 2.1 points in January to 49.1 after climbing 0.8 point in December.  This means that supplier deliveries were faster for the sixteenth straight month but they rose at  a slightly slower pace in January than in December.  Fiore noted that “Panelists’ comments continue to indicate that suppliers’ performance is improving, but for most industries, delivery promises appear to be stable as inputs transition to a more demand-driven environment,”

The employment index fell 0.4 points in January to 47.1 after  having risen 1.7 points in December.   Fiore noted that, “The index indicated employment contracted for the fourth month in a row (and at a faster rate in January) after one month of expansion and three months of contraction before that. Of the six big manufacturing sectors, only Transportation Equipment expanded. Labor management sentiment at Business Survey Committee respondents’ companies still indicates a slowdown in hiring and, in January, a continuation of staff-reduction activity. Attrition, freezes and layoffs were used to reduce head counts. Quits rates remained at 12-month lows. The majority of panelists’ comments indicated labor force reductions; in the previous two months, they were equally split between companies hiring and others reducing their labor forces,”  An index reading above 50.4 is generally consistent with an increase in the BLS data on manufacturing employment.  Thus, factory employment is likely to decline in January.

The backlog of orders fell 0.6 points in January to 44.7 after having jumped 6.0 points in December.  Fiore noted that,  “The index remains in contraction as production rates and new order levels continue to have a negative effect on backlogs.”

Customer inventory levels plunged by 4.4 points in January to 43.7 after having declined 2.7 points in December.   Fiore said that, “Customers’ inventory levels sagged, moving into the ‘too low’ region, as panelists report their companies’ customers have a significant shortage of their products in inventory, which is considered positive for future new orders and production. The index registered its lowest level since October 2022, when it recorded 41.6 percent,”

With the increase in the orders index and the drop in customer inventories the ratio of order to inventories rose 0.2 in January to 1.2.  The pickup in this ratios suggest that production could begin to climb slowly in the months ahead.


The prices paid component jumped 7.7 points in January to 52.9 after fallen 3.9 points in December.  Fiore noted that, “The Prices Index indicated expansion in the first month of 2024 as new pricing agreements get implemented at panelists’ companies. The index reached its highest level since April 2023 (53.2 percent). Twenty percent of companies reported higher prices, compared to 14 percent in December,”       A prices index above 52.8 is generally consistent with the Bureau of Labor Statistics PPI index for Intermediate Materials.

We expect GDP to climb at roughly a 1.5% pace in the first two quarters of this year.

Stephen Slifer


Charleston, S.C.