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US Manufacturing Contracts for 4th Month

Feb. 1, 2016
The ISM purchasing managers index registers 48.2 for January, up from a downwardly-revised 48.0 for December, but still slumping.

U.S. manufacturing activity contracted in January, its fourth straight monthly drop according to the new survey from the Institute for Supply Management, even while the overall economy continues to grow.

The ISM purchasing managers index (PMI) for the manufacturing sector registered 48.2, slightly better than the downwardly-revised 48.0 registered in December. Anything below 50 indicates contraction. The index for manufacturing employment from 48.0 in December to 34.9, and the exports index also dropped from 51.0 to 47.0.

More than half of the 18 industries surveyed reported business was worse — led by the oil and gas sector, which has been cutting back sharply amid the plunge in oil prices. Also reporting shrinking business were the apparel, food and beverage, transportation equipment and fabricated metal products sectors.

Still growing were the computer and electronics, machinery, electrical equipment and printing sectors.

News was not all bad, as the production index increased from 49.9 back above the contraction-expansion threshold to 50.2, as did new orders, from 48.8 to 51.5.

“The findings of this month’s ISM report are consistent with recent Census Bureau data on factory orders and the Federal Reserve Board’s latest index of manufacturing activity,” said Don Norman, director of economic studies for the MAPI Foundation. “The drivers behind the slowdown in manufacturing activity are easy to identify. The slowdown in China’s economic growth and the rise in the value of the dollar over the past year are largely responsible for the decline in exports. The dramatic fall in the price of oil, coupled with the low price of natural gas, has reduced oil and gas development activity and thus the demand for manufactured goods required for such development.

“Given how the manufacturing sector has been buffeted by these negative events, it encouraging that manufacturing sector activity hasn’t contracted more sharply than it has.”

“This report was far from disappointing. In fact, the index rose modestly for the first time since April 2015, suggesting that we may be nearing a trough,” TD Economics U.S. regional economist Neil Shankar said. “Nonetheless, despite December's pick-up in the export sub-index, the metric fell back into contractionary territory in January confirming the challenges that the external sector continues to face: soft global economic activity and the impact of a strong dollar.”

Shankar also noted that the continued slump in energy-related investment “continues to weigh on domestic manufacturers as the weakness works through a complex supply chain.”

“We are a bit slower, but staying busy,” said a survey respondent from the fabricated metal products industry.

However, another respondent from the food and beverage sector said, “Much worldwide macroeconomic uncertainty affecting our business. Business confidence seems low.” 

Across all manufacturing industries, producer inventories continued to contract while customer inventories were still too high; prices decreased and employment contracted further. And despite the manufacturing downturn, the ISM said its data indicated that, overall, the U.S. economy continued to grow last month, even if at a slow pace.

“The past relationship between the PMI and the overall economy indicates that the PMI for January (48.2) corresponds to a 1.6% increase in real gross domestic product (GDP) on an annualized basis,” said Bradley Holcomb, who leads the ISM Manufacturing Business Survey Committee.

Copyright Agence France-Presse, 2016

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