The sputtering global economy is catching up with U.S. factories. While still in expansion territory, the Institute for Supply Management manufacturing index fell to 53.5% in January from 55.1% in December.
The January figure fell just below the consensus forecast of 54.0%, but still represented the 20th consecutive month of growth in the sector.
New orders continued to grow, with a reading of 52.9%, and ISM reported that most industries were experiencing strong demand. But ISM’s index for new export orders slipped from 52.0% in December to 49.5%, falling into contraction after 25 months of growth.
The third straight monthly easing in the PMI figure, said Chad Moutray, chief economist for the National Association of Manufacturers, is a “sign that weaknesses in the global economy have begun to dampen demand for U.S. manufacturers.” If the recent softness continues, he warned, it could “cloud what up until now had been a relatively strong economic outlook for manufacturers, particularly if these weaknesses persist beyond January.”
ISM reported that the West Coast dock slowdown “continues to be a problem, negatively impacting both exports and imports as well as inventories." Said one paper products manufacturer: "West Coast port slowdown is getting serious. Mill has 40+ days of production at the ports and various warehouses."
The production index slowed to 56.5%, down from a seasonally adjusted December reading of 57.7%.
ISM’s employment index also fell slightly, from 56.0% in December to 54.1% in January.
Falling oil prices likely contributed to the prices index registering 35%, down from 38.5% in December.
The growth in U.S. manufacturing contrasted with a weak report from China, where HSBC bank last week reported a January PMI of 49.7 and the official Chinese government PMI fell to 49.8.
Tepid industrial growth was reported today in Canada, where the RBC Canadian manufacturing PMI dropped to 51.0 in January from 53.9 in December.
“The Bank of Canada justified its surprise January rate cut with a forecast of a sharp decline in energy-sector related economic activity in early 2015, one that would only gradually be offset by faster non-energy sector growth,” observed Bill Adams, senior international economist for PNC Financial Services Group. “The sharp drop in the RBC PMI in January corroborates the Bank of Canada’s bearish forecast, and increases the odds of a second rate cut at the next scheduled rate decision on March 4.”