The ISM Manufacturing Index ticked up to 49.1 in January, handily beating the 47.2 level markets had expected. Four industries reported growth in January, up from one in December.
The new orders sub-index flipped to growth, rising 5.5 percentage points (pp) to 52.5. Unfortunately, the contraction in new export orders deepened as the index tumbled 4.7 pp to 45.2. The employment index continued to signal contraction (47.1) for fourth month in a row.
Production flipped back to growth in January, rising 0.5 pp to 50.4. Despite an uptick in demand, the backlog of orders continued to fall for the 16th month in a row (44.7).
The prices paid sub-index jumped 7.7 points to 52.9. This is the first time raw materials prices have risen since April 2023.
Key Implications
The headline figure suggests another month of contraction in the manufacturing sector, but it wasn’t without a silver lining. The new orders subindex rose to its highest level since May 2022 and broke a streak of 16 consecutive months of decline.
Overall, this month’s manufacturing report is a solid data point showing that the weakness in the manufacturing sector may have found a floor. Looking ahead to the rest of the year, the much anticipated reduction in interest rates should provide a tailwind for goods demand, and help support a recovery in the sector.
