January Marks 12th Consecutive Month of Manufacturing Sector Contracting

A bright spot is that prices are dropping so that manufacturers are paying less for their inputs, and this should ultimately be good for consumers.

ISM is reporting that manufacturing contracted in January as the PMI registered 35.6%, 2.7 percentage points higher than the 32.9% reported in December. This is the 12th consecutive month of contraction in the manufacturing sector. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting.

The January New Orders Index is at 33.2%, up from the seasonally adjusted 23.1% recorded in December. "While this is a significant month-over-month improvement, it is still a sign of continuing weakness in the sector. Comments from our respondents indicate that it will take a recovery in automobiles and housing for the manufacturing sector to once again prosper. On a positive note, the Prices Index continues to indicate significant deflation in the prices that manufacturers have to pay for their inputs, and this should ultimately be good for the consumer," said Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee.

"The January ISM report on manufacturing shows a continuing decline in manufacturing activity," said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI. Other than the fact that manufacturing is declining at a slightly decelerating rate, there was no good news in the ISM report. Production, employment, backlogs, and foreign trade are all declining from already very low levels. Also, customer inventories are too highindicating further production cuts in the future.

"It should be clear by now that the United States is in the center of a severe global recession that will last through, at least, the first half of this year," he added. "Deleveraging and restoration of responsible bank credit, the loss of consumer wealth, and loss of confidence in our economic stability, though, will have a lingering braking effect on the economic recovery later this year and in 2010."

The Production Index registered 32.1% in January, up from December's 26.3%

The Employment Index registered 29.9% in January, which is the same as the reading reported in December. This is the sixth consecutive month of decline in employment.

Manufacturers' inventories contracted in January as the Inventories Index registered 37.5%, compared to December's reading of 39.6%.

The New Export Orders Index registered 37.5% up from 35.5% reported in December. This is the fourth month of contraction in the New Export Orders Index. Imports of materials by manufacturers contracted during January as the Imports Index registered 36.5%, compared to 39% in December. This is the 12th consecutive month of contraction in imports

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