The U.S. manufacturing downturn deepened in January, fueled by a further pullback in orders and factory production. Of the 15 industries tracked, Wood products contracted the most while furniture was the fourth-ranked industry in terms of contraction.
The Institute for Supply Management’s gauge of factory activity fell for a fifth straight month in January to 47.4, the weakest since May 2020. Readings below 50 indicate contraction.
According to ISM’s data, released on Feb. 1, only two industry segments — miscellaneous manufacturing and transportation equipment — reported growth.
The reading “reflects companies slowing outputs to better match demand in the first half of 2023 and prepare for growth in the second half of the year,” said Timothy Fiore, chair of ISM’s Manufacturing Business Survey Committee.
“The U.S. manufacturing sector again contracted, with the Manufacturing PMI® at its lowest level since the coronavirus pandemic recovery began. With Business Survey Committee panelists reporting softening new order rates over the previous nine months, the January composite index reading reflects companies slowing outputs to better match demand in the first half of 2023 and prepare for growth in the second half of the year.”
According to Fiore, demand eased, with the New Orders Index contracting strongly, New Export Orders Index still below 50 percent but improving, Customers’ Inventories Index contracting slightly, a positive for future production, and Backlog of Orders Index recovering for a second month, but still in strong contraction.
Output/Consumption (measured by the Production and Employment indexes) was negative, with a combined 0.8-percentage point downward impact on the Manufacturing PMI® calculation.
The Employment Index remained just above 50 percent and the Production Index logged a second month in contraction territory. Panelists’ companies are indicating that they are not going to substantially reduce headcounts as they are positive about the second half of the year. Inputs — defined as supplier deliveries, inventories, prices, and imports — continue to accommodate future demand growth. The Supplier Deliveries Index indicated faster deliveries, and the Inventories Index expanded at a slower rate as panelists’ companies manage the total supply chain inventory. The Prices Index contracted for the fourth consecutive month, but at a slower rate.
“Of the six biggest manufacturing industries, one — Transportation Equipment — registered growth in January,” he said. "New order rates remain depressed due to buyer and supplier disagreements regarding price levels and delivery lead times; these should be resolved by the second quarter. In the meantime, panelists’ companies are attempting to maintain head-count levels during the anticipated slow first half in preparation for a strong performance in the second half of 2023. Eighty-six percent of manufacturing gross domestic product (GDP) is contracting, up from 85 percent in December.
“However, 26 percent of sector industries had a composite PMI® calculation of below 45 percent in January (a stronger indication of industry sluggishness), down from 35 percent the previous month,” said Fiore.
The two manufacturing industries that reported growth in January are Miscellaneous Manufacturing; and Transportation Equipment. The 15 industries reporting contraction in January, in the following order, are Wood Products; Textile Mills; Paper Products; Furniture & Related Products; Apparel, Leather & Allied Products; Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Primary Metals; Nonmetallic Mineral Products; Fabricated Metal Products; Chemical Products; Machinery; Food, Beverage & Tobacco Products; Petroleum & Coal Products; and Computer & Electronic Products.