The January 2012 ISM Manufacturing Survey shows PMI increased by 2.9 percentage points to 53.1% and is in expansion for the 2nd month in a row. This is the 4th time in eight months manufacturing PMI has been in expansion. Overall the report is actually modest expansion, although all five indexes which make up PMI were on the positive side.
This month's ISM report comments from manufacturing survey responders are all about our government and their magical ability to screw up the economy. Four of the nine comments are reporting depressed demand and uncertainity due to the government. Food, Beveridge and Tobacco mentioned the lasting effects of last year's drought.
Midwest drought impact will be felt at least through midyear.
New Orders showed increased 3.6 percentage points to 53.3%. New Orders inflection point, where expansion turns into contraction, isn't exactly 50% for the long term, it is 52.3%. This implies while the monthly new orders is growing, but the 1st month for long term growth. From the ISM:
A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders.
The Census reported manufactured December durable goods new orders growth was 4.6%, where factory orders, or all of manufacturing data, will be out this week. The ISM claims the Census and their survey are consistent with each other. To wit, below is a graph of manufacturing new orders percent change from one year ago (blue, scale on right), against ISM's manufacturing new orders index (maroon, scale on left) to the last release data available for the Census manufacturing statistics. Here we do see a consistent pattern between the two.
Below is the ISM table data, reprinted, for a quick view.
|ISM MANUFACTURING JANUARY 2013|
|Index||Jan 2013||Dec 2012||% Change.||Direction||Rate of Change||
|New Orders||53.3||49.7||+3.6||Growing||From Contracting||1|
|Customers' Inventories||48.5||47.0||+1.5||Too Low||Slower||14|
|Backlog of Orders||47.5||48.5||-1.0||Contracting||Faster||10|
Production, which is the current we're makin' stuff now meter, increased 1.0 percentage points from last month to 53.6%, and is still in expansion. Production usually follows incoming orders in the next month.
ISM's manufacturing production index loosely correlates to the Federal Reserve's industrial production, but not at 50% as the inflection point, instead 51.2% to indicate growth. Below is a graph of the ISM manufacturing production index (left, maroon), centered around the inflection point, quarterly average, against the Fed's manufacturing industrial production index's quarterly change (scale right, blue). We can see there is a matching pattern to the two different reports on manufacturing production.
The manufacturing ISM employment index came up 2.1 percentage points to 54.0% and is in expansion for the 2nd month in a row. The neutral point for hiring vs. firing is 50.1% and November's contraction was the 1st time in 39 months. Below are the BLS manufacturing non-farm payrolls (jobs) for the past decade on the left (maroon), graphed against the ISM manufacturing employment index on the right (blue). The BLS manufacturing payrolls is the monthly percentage change and the ISM manufacturing employment index is centered around it's inflection point of contraction and employment growth. This is just monthly change, manufacturing has lost approximately 6 million jobs over the graphed time period.
Inventories ballooned back up by 8.0 percentage points to 51.0%, and moved from contraction into expansion. In December 2009 inventories came in at 41.9% for comparison's sake. The ISM claims inventories are correlated to manufacturing inputs, that are part of GDP. Changes in nonfarm inventories, of which manufacturing is only a part, subtracted -1.27 percentage points to Q4 2012's -0.14% GDP.
An Inventories Index greater than 42.8 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories.
Supplier deliveries are how fast manufacturers can get their supplies. A value higher than 50 indicates slower delivery times, a value below 50 means the supply chain is speeding up. The index pretty much stayed the same, a -0.1 percentage point change to 53.6% which means things are sllooowww.
Backlog of orders dropped by -1.0 percentage points, to 47.5%. Order backlogs are still in contraction, now for 10 consecutive months. More order backlogs would imply production and thus hiring would be stepped up, but the index is still in contraction, below 50%. Order backlogs are exactly what they sound like and only 86% of survey respondents reported on order backlogs.
Imports decreased -1.5 percent points to be right on the border 50.0% and and thus are unchanged. . Imports are materials from other countries manufacturers use to make their products.
New orders destined for export, or for customers outside of the United States, decreased -1.0 percentage point to 50.5% and is in expansion, the 2nd month since May 2012, but slowing.
The ISM price index increased 1.0 percentage points to 56.5%. Prices are what manufacturers pay to make their products and this month means prices are increasing, and at a faster rate. In April 2009 the price subindex was 32%.
Customer's inventories increased 1.5 percentage points to 48.5%. Below 50 means customer's inventories are considered by manufacturers to be too low. Customer inventories, not to be confused with manufacturer's inventories, are how much customers have on hand, and rates the level of inventories the organization's customers have.
Here is the ISM industrial sector ordered list of growth and contraction. Chemical products mentioned a 10% export decline and thus production is ramping down, which is not a good sign generally.
Of the 18 manufacturing industries, 13 are reporting growth in January in the following order: Plastics & Rubber Products; Textile Mills; Furniture & Related Products; Printing & Related Support Activities; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Miscellaneous Manufacturing; Fabricated Metal Products; Transportation Equipment; Petroleum & Coal Products; Machinery; Primary Metals; and Food, Beverage & Tobacco Products. The four industries reporting contraction in January are: Nonmetallic Mineral Products; Computer & Electronic Products; Wood Products; and Chemical Products.
The ISM has a correlation formula to annualized real GDP, but they are now noting the past correlation. Notice also that the PMI went to equal weighting in 2008. January's data, the ISM get a 3.4% 2013 annual real GDP. The below graph plots real GDP, left scale, against PMI, right scale, GDP up to Q4 2012. One needs to look at the pattern of the two lines to get anything out of this by quarters graph. If they match, GDP goes up, PMI goes up, would imply some correlation.
The ISM neutral point is 50, generally. Above is growth, below is contraction, There is some some variance in the individual indexes and their actual inflection points. For example, A manufacturing PMI above 42, over time, also indicates growth, even while manufacturing is in the dumpster. Here is last month's manufacturing ISM overview, unrevised. The ISM has much more data, tables, graphs and analysis on their website. For more graphs like the above, see St. Louis Federal Reserve Fred database and graphing system. PMI™ stands for purchasing manager's index. On ISM correlations to other indexes, when in dollars they normalized to 2000 values. The above graphs do not do that, so our graphs are much more rough than what the ISM reports these indices track.