U.S. manufacturing expanded in January primarily due to new orders and production. The January 2012 ISM Manufacturing Survey increased +1.0 percentage points to 54.1% PMI. December PMI was revised down, from 53.9% to 53.1% in the ISM's annual revisions. The revisions changed mainly due to the U.S. department of Commerce seasonal adjustments algorithm modifications. The revisions overall show there was less decline over summer 2011 than originally reported. Seems the 2008 financial crisis blew out the statistical seasonal adjustment algorithm beyond just S&P's housing statistics.
New Orders increased +2.8 percentage points to 57.6% with Petroleum & Coal leading the charge. Yet December new orders were revised downward, from 57.6% to 54.8%.
A New Orders Index above 52.1%, over time, is generally consistent with an increase in the Census Bureau's real series on manufacturing orders.
PMI is a composite index on manufacturing. Here's how the ISM defines PMI:
The PMI is a composite index based on the seasonally adjusted diffusion indexes for five of the indicators with equal weights: New Orders, Production, Employment, Supplier Deliveries and Inventories.
Below is the ISM table data, reprinted, for a quick view.
|Manufacturing at a Glance January 2012|
|Index||January||December||% Point Chg.||Direction||Rate||Trend|
|Customers' Inventories||47.5||42.5||+5.0||Too Low||Slower||2|
|Backlog of Orders||52.5||48.0||+4.5||Growing||From Contracting||1|
Production, which is the current we're makin' stuff now meter, declined a whopping -3.2 percentage points from last month to 55.7%. Production loosely correlates to the Federal Reserve's industrial production, where the January statistics will be out mid-month.
Now we come to employment, otherwise known as where are the damn jobs? The manufacturing ISM employment index droped -0.5 percentage points to 54.3%. The neutral point for hiring vs. firing is 50.1%.
Below are the BLS manufacturing non-farm payrolls (jobs) for the past decade on the left, in red (January's numbers are out Friday), graphed against the ISM manufacturing employment index on the right, in blue. The BLS number is simply raw manufacturing jobs tally, not taking into account population growth or overall sector shrinkage as well as time lag. One can eyeball a slight correlation in the middle of the decade, yet note the divergence this recovery, starting late 2008.
Inventories jumped +4.0 percentage points to 49.5%, and remain in contraction. The ISM claims:
An Inventories Index greater than 42.7 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).
Changes in all, not just manufacturing, private inventories added +1.94 percentage points, or over 70%, to Q4 2.8% GDP.
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 jumped +2.1 percentage points to 53.6% with Petroleum & Coal also leading the charge in slower supplier delivery times.
The last time supplier deliveries registered below 50 percent was in May 2009, when the Supplier Deliveries Index also registered 49.9 percent. A reading above 50 percent indicates slower deliveries.
Backlog of orders increased +4.5 percentage points to 52.5% and moved into expansion. Order backlogs are exactly what they sound like, how many new orders have delays in being filled.
Imports decreased -1.5 percentage points to 52.5%. 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, increased +2.0 percentage point to 55.0%.
Prices blew up +8.0 percentage points to 55.5% and moved from decreasing to increasing. Prices are what manufacturers pay to make their products.
Customer's inventories increased +5.0 percentage points to 47.5%. Customer inventories, not to be confused with manufacturer's inventories, is how much customers have on hand, or rates the level of inventories the organization's customers have.
Here is the ISM growth and contraction sector ordered list:
Of the 18 manufacturing industries, nine are reporting growth in January, in the following order: Apparel, Leather & Allied Products; Petroleum & Coal Products; Machinery; Computer & Electronic Products; Transportation Equipment; Miscellaneous Manufacturing; Fabricated Metal Products; Paper Products; and Primary Metals. The seven industries reporting contraction in January — listed in order — are: Plastics & Rubber Products; Furniture & Related Products; Wood Products; Chemical Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; and Textile Mills.
U.S. manufacturing PMI is bucking the European trend. Europe's manufacturing PMI increased 1.9 percentage points, but is still in contraction, now ongoing for 6 months. China's PMI was 50.5% in January.
The ISM has a correlation formula to annualized GDP, but they are now noting the past correlation. Notice also that the PMI went to equal weighting in 2008. Annualizing January's data, the ISM get a 3.9% 2012 annual GDP.
The ISM neutral point is 50. Above is growth, below is contraction, although the ISM is this report is noting some variance in the individual indexes. For example, A PMI above 42, over time, also indicates growth.
Here is last month's manufacturing ISM overview, unrevised.