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US Manufacturing Posts Its First Expansion in Six Months

US Manufacturing Posts Its First Expansion in Six Months

Feb. 3, 2020
The gain reflected sizable improvements in the orders and production components.

A gauge of U.S. manufacturing rebounded sharply in January, topping estimates and signaling growth in the beleaguered sector for the first time since July.

The Institute for Supply Management’s purchasing managers’ index, based on a survey of manufacturers, increased to 50.9 in January from an almost four-year low of 47.8, according to date released on Feb. 3. While just above the 50 level that signals expansion, the monthly advance was the largest since mid-2013. ISM last week revised data back to 2012. Stocks, bond yields and the dollar extended gains after the report.

The gain -- exceeding the median projection for 48.5 -- reflected sizable improvements in the orders and production components, while the employment gauge contracted at a slower pace. The new orders index jumped to an eight-month high of 52 and the production gauge surged 9.5 points, also the largest gain in more than six years.

The figures, along with the strongest reading for the ISM’s export index since September 2018, suggest the worst may be behind for American factories. The gain also brings the group’s measure more in line with IHS Markit’s factory index, which, unlike the ISM figure, showed expansion in manufacturing for all of last year.

“We’re going to have to wait and see” whether the PMI continues to expand in coming months, Timothy Fiore, chair of the ISM’s manufacturing survey committee, said on a call with reporters. “Weakness in the inputs for January questioned demand for expansion in February and whether we’re at the beginning of sustained PMI expansion.” Additionally, the coronavirus is likely to have an impact in February, he said.

Depressed by weak export markets, a trade war, cutbacks in business investment and elevated inventories relative to sales, the sector has struggled to gain traction. As a result, the services sector has fueled the economic expansion. Sustained manufacturing growth would indicate a partial trade deal with China is providing impetus for further expansion.The ISM measure shows the sector is barely expanding and remains in a precarious position. A quickly spreading coronavirus threatens to damp activity abroad and adds to uncertainty about global growth prospects, while domestic demand has cooled and Boeing Co.’s production halt of the 737 Max is weighing on producers.

Eight of 18 manufacturing industries reported growth in January, led by furniture, wood products, food and computers. Eight also reported that business shrank, including the print, apparel and electrical equipment sectors.

Another report showed companies are cutting back on capital expenditures. Private construction spending on non-residential structures, including factories, hotels and office buildings, slumped 1.8% in December from a month earlier, the most since April.

The ISM’s factory employment gauge improved in January but remained anemic at 46.6, suggesting hiring weakness in the sector may continue. While factories last year added the fewest jobs since 2016, the Labor Department’s monthly employment report Friday will offer information about hiring at the start of 2020.

An index of prices paid showed input costs increased as the gauge of supplier deliveries held above 50, suggesting shipments are slowing.

In a separate report, IHS Markit’s factory gauge eased in January to a final reading of 51.9 from 52.4 a month earlier.

By Reade Pickert

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