February 3, 2025
The Institute for Supply Management’s index of conditions in the manufacturing sector rose 1.7 points in January to 50.9 after gaining 0.8 point in December and 1.9 points in November. This is the first time this index has been above the break-even level of 50.0 since March of last year, and the highest level for this index since September 2022.. A level of 50.9 is associated with a GDP increase of 2.4%.
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 Wednesday, February 5.
The Institute for Supply Management Chair for the Survey Committee Timothy Fiore said, “U.S. manufacturing activity expanded in January after 26 consecutive months of contraction. Demand clearly improved, while output expanded and inputs remained accommodative.” He added that, “Demand and production improved; and employment expanded. However, staff reductions continued with many companies, but at weaker rates. Prices growth was moderate, indicating that further growth will put additional pressure on prices. As predicted, maintaining a slower rate of price increases as demand returns will be a major challenge for 2025. Forty-three percent of manufacturing gross domestic product (GDP) contracted in January, down from 52 percent in December. The share of manufacturing sector GDP registering a composite PMI® calculation at or below 45 percent (a good barometer of overall manufacturing weakness) was 8 percent in January, a dramatic 41-percentage point improvement compared to the 49 percent reported in December.”
Comments from respondents include the following:
- “Customer orders slightly stronger than expected. Seeing more general price increases for chemicals/raw materials. No International Longshoremen’s Association strike is a tremendous help.” [Chemical Products]
- “Alleviating supply chain conditions are noticeably pivoting back into acute shortage situations, with headwinds following. For aerospace and defense companies, critical minerals supply chains are tightening dramatically due to Chinese restrictions. Concerns are growing of an environment of more supply chain shortages.” [Transportation Equipment]
- “As the U.S. administration transfers, we will continue to monitor impact of tariffs on materials used for manufacturing. China stimulus is helping us win orders and increase use of services and consumables. Cost pressures remain for all materials and parts but are starting to stabilize.” [Computer & Electronic Products]
- “Volume in 2025 is targeting 2-percent growth. The organization is mindful of potential tariffs and what to do with re-routing or cost increases in supply chains that are impacted.” [Food, Beverage & Tobacco Products]
- “Although we are in our busy season, our demand for the first two weeks of 2025 has outpaced normal levels for this period of time.” [Machinery]
- “Business is slowly improving.” [Electrical Equipment, Appliances & Components]
- “Capital equipment sales are starting 2025 off strong. Normally, we see a soft start to the year, so this strong start is unusual.” [Fabricated Metal Products]
- “New orders are still good but decreasing compared to previous quarters. Working through current backlog.” [Miscellaneous Manufacturing]
- “Automotive order demand continues to be consistent and on a steady pace. Beginning to look at hiring additional team members once again. Pricing is holding firm. Having to work overtime to cover plant inefficiency to date.” [Primary Metals]
- “Looking forward to a year of strong customer demand and higher sales than 2024.” [Textile Mills]
The orders component rose 2.6 points in January to 55.1 after climbing 2.1 points in December to 52.5 and 3.3 points in November.. The orders component has moved higher in each of the past five months and has been above the break-even level of 50.0 for the past three months. The New Orders Index hasn’t indicated consistent growth since a 24-month streak of expansion ended in May 2022. Fiore said, “Of the six largest manufacturing sectors, four (Petroleum & Coal Products; Machinery; Chemical Products; and Transportation Equipment) reported increased new orders. Panelists noted an improved level of demand performance, with a 2-to-1 ratio of positive comments versus those expressing concern about near-term demand, an improvement compared to December. Capital and export orders were significant contributors,”
The production component rose 2.2 points in January to 52.5 after having jumped 3.5 points in December and climbing 0.6 point in November. The production component was above the break-even level of 50.0 in both December and January. Fiore said that, “Production levels improved in January, led by the more capital-intensive industry sectors and in spite of weather issues,”
The delivery performance of suppliers to manufacturing organizations rose 0.8 point in January to 50.9 after having risen 1.4 points in December. This measure indicates the proportion of companies that are reporting slower delivery times. Hence, a reaching above 50.0 indicates that delivery times actually slowed slightly in January. ”Fiori noted that, “Supplier deliveries moved marginally deeper into ‘slower’ territory, as respondents indicated that supplier delivery performance continues to meet the expectations of their companies’ customers. Panelists’ comments support the fact that suppliers are having more difficulty in meeting companies’ demands,””
The employment index rose 5.0 points in January to 52.4 after having declined 2.8 points in December. “The index has returned to expansion after contracting in 14 of the last 16 months. Of the six big manufacturing sectors, two (Chemical Products; and Transportation Equipment) expanded employment in January. Respondents’ companies are continuing to reduce head counts through layoffs, attrition and hiring freezes. This action is supported in January by the approximately 1-to-1 ratio of hiring versus staff-reduction comments, compared to a 1-to-2 ratio the previous month, meaning less workforce reduction activity is occurring as we enter 2025,” An employment index above 50.3 is generally consistent with an increase in the BLS data on manufacturing employment.
The backlog of orders fell 1.0 point in January to 44.9 after having surged by 4.1 points in December. Fiore noted that, “It appears that the extensive decline in order books has dramatically slowed, indicated by two months at moderate rather than significant contraction. By definition, the Backlog of Orders Index will be the last of the four demand indicators to enter expansion,”
Customer inventory levels were unchanged in January at 46.7 after having declined 1.7 points in December. Fiore said that “Customers’ inventory levels in January continue on the high side of ‘too low.’ Panelists are reporting that the amounts of their companies’ products in their customers’ inventories suggest a demand level that is positive for future production,”
With a big increase in the orders index in the orders index and no change in customer inventories the ratio of orders to inventories rose 0.1 in January to 1.2 after having risen 0.1 to 1.1 in December. The 1.2 level for this index suggests that production should climb somewhat in the months ahead.
The prices paid component rose 2.4 points in January to 54.9 after gaining 2.2 points in December to 52.5 after declining 4.5 points in November. Fiore noted that, “The Prices Index indicated increasing prices in January for the fourth consecutive month, likely reflecting the agreement and deployment of prices by buyers for 2025. Mill materials (steel, aluminum and copper), food elements and natural gas registered increases, offset by plastic resins and diesel fuel moving down in price. Twenty-one percent of companies reported higher prices in January, compared to 14 percent in December,”
After having risen 2.3% in the fourth quarter we expect GDP to expand at a 3.0% pace in 2025. The economy is showing few signs of slowing down.
Stephen Slifer
NumberNomics
Charleston, S.C.
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