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ISM Offers Cautious Optimism for Manufacturing

ISM Offers Cautious Optimism for Manufacturing

Feb. 1, 2024
Though the index rose, it remained below its neutral threshold of 50 for the 15th consecutive month, says Oxford Economics..

The Manufacturing PMI registered 49.1% in January, up 2 percentage points from the seasonally adjusted 47.1% recorded in December, according to the ISM Report on Business released on Feb. 1. 

Ryan Sweet, Chief U.S. economist for Oxford Economics provided the following analysis:

The increase in the ISM manufacturing index in January is reason for cautious optimism but does not warrant a change to our near-term forecast for above-consensus GDP growth this quarter. Though the ISM manufacturing index rose, it remained below its neutral threshold of 50 for the 15th consecutive month. 

The details were mixed and there was only passing reference to the global shipping disruptions. This is not surprising as shipping costs have only recently jumped, and the headaches caused by shipping delays will take time to be felt by US manufacturers. The prices-paid index rose above its neutral threshold of 50 in January while inventories increased.

Supplier deliveries edged higher in January, indicating slower deliveries. It will likely continue to move higher over the next few months because of the global shipping disruptions. Our forecast assumes that the shipping disruptions will persist for six months, but there is considerable uncertainty. The duration and severity of the shipping disruptions will ultimately determine the boost to core consumer goods prices and the drag on manufacturing production.

New orders increased in January and are now north of the neutral threshold of 50. Separately, the dip in the employment index does not lend a significant downside risk to our forecast for nonfarm employment to have risen by a net 205,000. The ISM employment index does not do the best job predicting changes in the Bureau of Labor Statistics estimate of manufacturing employment.

The January ISM survey incorporates the annual revisions to the seasonal adjustment factors. The revisions were generally modest.