- New orders, a leading signal for production, resume expansion
- Factory employment gauge falls to weakest since June 2009
Manufacturing in the U.S. shrank in January for a fourth consecutive month as businesses cut staffing plans. Growth resumed in new orders and production, indicating some stabilization in the industry.
The 48.2 reading for the Institute for Supply Management’s index followed December’s 48 level that was the weakest since June 2009, data from the Tempe, Arizona-based group showed Monday. The results were lower than the 48.4 median forecast in a Bloomberg survey of 79 economists. Levels less than 50 for the gauge indicate contraction.
Factories are buffeted by persistent weakness in the oil industry, the stronger dollar and cooling overseas markets that also limited growth last quarter. The report showed the gauge of new orders, a leading signal for production, grew for the first time in three months, which would help manufacturing to eventually strengthen.
“This may be signaling the start of some stabilization in manufacturing activity and U.S. economic activity,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC in New York. “It’s good enough to know things haven’t gotten worse. The rise in new orders is encouraging.”
Economists’ estimates in the Bloomberg survey ranged from 47 to 50.5.
The new orders gauge rose to 51.5, the strongest since August, from 48.8. A measure of production climbed to 50.2, the first expansion in three months, from 49.9.
The factory employment index dropped to 45.9, the weakest since June 2009, from the prior month’s 48.
The measure of export orders dropped to a four-month low of 47 last month from 51.
The gauge of factory inventories held at 43.5, while customer stockpiles stayed at 51.5. The index for supplier deliveries was little changed at 50 after 49.8.
The report also showed the index of prices paid were the same as the previous month’s reading of 33.5, which was the lowest since April 2009. The prices measure has been contracting since November 2014.
Eight of 18 industries surveyed by the purchasing managers’ group posted growth, including machinery, computer and electronic products, electrical equipment and furniture.
“I really like the fact that new orders is up,” Bradley Holcomb, chairman of the ISM factory survey, said on a conference call with reporters. That gauge “really drives the system.”
While it’s “too early” to declare the worst is over, the orders numbers bear watching and a sustained pickup “could signal a bottom” for the industry’s slump, Holcomb said. In addition, the index of backlogs “is moving in the right direction” by contracting at a slower pace, also indicating an improving outlook.
Manufacturing’s struggles at the start of 2016 are an extension of late-2015 weakness, when sluggish capital spending, bloated stockpiles and a decline in exports damped U.S. growth.
The economy expanded at a 0.7 percent annualized rate in the final three months of last year, Commerce Department data showed last week. Consumer spending moderated to a 2.2 percent pace, while business investment fell at a 1.8 percent rate, the first drop since the third quarter of 2012.
(Updates with economist’s comment in fourth paragraph, ISM comment in 12th and 13th)