The good news is, IHS Markit’s US manufacturing PMI ticked higher in the final read for January, printing 51.9 versus 51.7 in the flash read.
The better news is that ISM manufacturing printed in expansion territory for the first time since July.
This, folks, is notable. For months, ISM manufacturing has been the outlier in terms of first- and second-tier US data. As discussed here at length on Sunday evening, the gauge has remained stubbornly below 50, even as other key data inflected for the better. December’s 47.2 print was the worst since 2009, and came as a bitter disappointment when it hit early last month.
The yawning gap between ISM and IHS Markit’s manufacturing gauges was becoming a source of consternation.
The final read on Markit’s gauge and the inflection in ISM mean that gap has now begun to close – and in the “right” direction.
The 50.9 print on the ISM headline very nearly matched the most optimistic estimate from 76 economists. The range was 46.2 to 51.0.
January’s reading is the highest since July, and brings the key barometer of US factory activity back closer to more optimistic readings on the services sector and consumer sentiment.
ISM new orders rose to 52 from 47.6. That is the best reading since May. Production jumped all the way from 44.8 to 54.3. New export orders rebounded sharply too, printing 53.3 versus 47.3.
January’s report is consistent with US growth of around 2.4%. That is a relief, considering December’s 47.2 reading (revised higher today to 47.8) suggested the economy was expanding at a meager 1.3% annualized clip.
The problem, of course, is that there’s now a new threat to global growth in the coronavirus scare. The impact on the US economy should be manageable (Goldman estimates it at 0.4%, for whatever that’s worth), but it’s impossible to say for sure.
Still, it’s nice to see ISM get back above the 50 demarcation line – no matter how fleeting the bounce may prove.
WHAT RESPONDENTS ARE SAYING
- “Business has picked up considerably. Many of our suppliers are working at or above full capacity. Tariffs are still a concern and are believed to be a factor in short supply and higher prices of electronic parts. Our profit margin has been somewhat negatively affected by high tariffs, particularly on electronic parts from China.” (Computer & Electronic Products)
- “Small signs of increased global demand in the chemical segment.” (Chemical Products)
- “Continued signs of slowdown in manufacturing.” (Transportation Equipment)
- “Demand for prepared frozen food continues to be strong, but margins compressing as inputs rise with price elasticity preventing accompanying increases.” (Food, Beverage & Tobacco Products)
- “Our customer slowdown has not reached the bottom.” (Petroleum & Coal Products)
- “Our business is starting 2020 stronger than we finished 2019, as we saw a dramatic downturn in orders over the last four months of 2019. Orders are up to start the year, but slightly behind where they were one year ago.” (Fabricated Metal Products)
- “Business is good — above last year, though a little below plan.” (Furniture & Related Products)
- “The annual holiday slowdown was slightly more significant compared to the previous three years, heightening concerns over the 2020 first-quarter forecast.” (Electrical Equipment, Appliances & Components)
- “The lack of faith in the economy seems to be why we cannot sell capital projects.” (Machinery)
- “Tariffs on injection molds will impact selection of mold builder for future jobs. We are more likely to choose domestic rather than offshore.” (Plastics & Rubber Products)
MANUFACTURING AT A GLANCE
|Index||Series Index Jan||Series Index Dec||Percentage Point Change||Direction||Rate of Change||Trend* (Months)|
|New Orders||52.0||47.6||+4.4||Growing||From Contracting||1|
|Customers’ Inventories||43.8||41.1||+2.7||Too Low||Slower||40|
|Backlog of Orders||45.7||43.3||+2.4||Contracting||Slower||9|
|New Export Orders||53.3||47.3||+6.0||Growing||From Contracting||1|
|Manufacturing Sector||Growing||From Contracting||1|