Manufacturing Sector Contracts for Third Month: ISM Report

Manufacturing Sector Contracts for Third Month: ISM Report

Feb. 1, 2023
“Supply chain issues continue to plague our production schedules," said one transportation company.

The January Manufacturing PMI for ISM registered 47.4%, 1 percentage point lower than the seasonally adjusted 48.4% recorded in December, according to the group’s Report on Business that was released on Feb. 1. That figure is the lowest since May 2020, when it registered a seasonally adjusted 43.5% percent.

“Regarding the overall economy, this figure indicates a second month of contraction after a 30-month period of expansion,” notes Timothy R. Fiore.

Other Indexes are as follows:

The Supplier Deliveries Index figure of 45.6% is 0.5 percentage point higher than the 45.1% recorded in December; the last two readings are the index’s lowest since March 2009 (43.2%).

The New Orders Index remained in contraction territory at 42.5%, 2.6 percentage points lower than the seasonally adjusted figure of 45.1% recorded in December.

The Production Index reading of 48% is a 0.6-percentage point decrease compared to December’s seasonally adjusted figure of 48.6%.

The Prices Index registered 44.5%, up 5.1 percentage points compared to the December figure of 39.4%.

The Backlog of Orders Index registered 43.4%, 2 percentage points higher than the December reading of 41.4%.

The Employment Index continued in expansion territory (50.6%, down 0.2 percentage point from December’s seasonally adjusted 50.8%) after emerging from contraction territory (48.9%, seasonally adjusted) in November.

The Inventories Index registered 50.2%, 2.1 percentage points lower than the seasonally adjusted December reading of 52.3%.

The New Export Orders Index reading of 49.4% is 3.2 percentage points higher than December’s figure of 46.2%.

The Imports Index continued in contraction territory at 47.8%, 2.7 percentage points above the December reading of 45.1%.”

Of the six biggest manufacturing industries, one — Transportation Equipment — registered growth in January.

Here is a sample of what respondents to the survey said.

  • “Business is still strong, but we have begun to see softening in some pricing, and lead times seem to be improving.” [Computer & Electronic Products]
  • “Conditions are reasonable. Sales are a little better than planned. Cost pressures are easing for most products. There have been a lot fewer supply disruptions so far this year, and few expected in the short term. The crystal ball remains a little blurry for the rest of 2023.” [Chemical Products]
  • “Sales have dropped (as expected) at the beginning of the year. Forecast from the sales department is showing even lower sales then we expected. If this holds true, inventory levels will rise slightly over next month and a half.” [Food, Beverage & Tobacco Products]
  • “Supply chain issues continue to plague our production schedules. Transportation from our overseas suppliers is also contributing to delays. Lead times have doubled for critical electronics, gaskets, sealants, and specialized steel.” [Transportation Equipment]
  • “Strong big ag demand continues to drive heightened demand for parts. Large construction/off highway original equipment manufacturers have strong demand as well. Creating continued capacity constraints with the supply base.” [Machinery]
  • “Some business segments showing demand softening globally. Many materials showing improved lead times as well as cost deflation.” [Electrical Equipment, Appliances & Components]
  • “Thus far, the outlook for the first half of 2023 looks very soft. Demand for our products has taken a sharp downward turn. Our inventories are high, as well as our customers’. It seems everyone is bracing for a recession.” [Fabricated Metal Products]
  • “Customers are being quite aggressive in pursuing price decreases, far beyond the price relief we are actually receiving from our suppliers.” [Miscellaneous Manufacturing]
  • “Industrial construction is strong. Commercial construction is slower.” [Nonmetallic Mineral Products]
  • “In the past two weeks, we are seeing a slowing of new orders.” [Primary Metals]

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