US manufacturing drags in frigid January, global recovery on track,Manufacturing activity in the US slowed in January mainly due to severe cold weather conditions while global recovery is on track, reports Team IFM
New York, February 4: American manufacturing activity slowed considerably in January mainly on account of severe cold weather conditions, a slowdown in securing fresh orders and inventories, economic indicators of two sets of survey data released separately on Monday showed, while a third batch pointed to a stable global scenario.
The Institute for Supply Management Manufacturing Business Survey, based on feedback from the nation’s supply executives, said the sector expanded for the eighth consecutive month in the US. The downside: this growth was the slowest since May 2013.
The second set of data, the Markit US Manufacturing PMI by economy tracker Markit, came to similar conclusions but said the growth rate was the slowest since October. “The slowdown also reflected in part a drop in new export orders for the first time since last September,” Markit said in a statement.
Of the 18 manufacturing industries that ISM surveyed, 11 that reported growth in January were primarily intermediate goods producers in sectors such as plastics and rubber products, primary metals and textile mills.
Of the seven industries reporting contraction were consumer goods producers in sectors like non-metallic mineral products (such as cement and glass); petroleum and coal products, and apparel and leather products.
Markit, which emphasised that its sample respondents did not overlap that of ISM’s, came to similar broad conclusions.
The two survey data is in line with reports emanating from the US last Tuesday that reflected a stronger economic outlook for the second successive month in January which, nonetheless, was tempered by lower than expected demand for American consumer durables.
The consumer confidence index of The Conference Board, a New York-based economy tracker, showed consumers’ expectations kept climbing in January after registering a sharp improvement the month before. However, the US Commerce Department said demand for manufactured goods had fallen leading to a $3-billion inventory pileup.
Meanwhile, the third survey, the JP Morgan Global Manufacturing PMI, said on Monday its data signalled global manufacturing expansion for the 14th successive month “which encouraged companies to raise employment for the sixth straight month”.
The JP Morgan report said new orders rose for the 13th successive month in January and according to it, worldwide manufacturing recovery was “on track at start of 2014”.
ISM Findings
The ISM survey’s economic indicator – the Purchase Managers’ Index or PMI – for January registered 51.3 per cent, a decrease of 5.2 percentage points from December’s seasonally adjusted reading of 56.5 per cent.
Economists surveyed by Dow Jones Newswires had expected the latest PMI to come in at 56, The Wall Street Journal said after ISM released its data. “January’s report showed a broad pullback across many key components in the factory sector,” the Journal noted.
ISM’s New Orders Index registered 51.2 per cent, a “significant decrease” of 13.2 percentage points from December’s seasonally adjusted reading of 64.4 per cent, ISM said.
The Production Index registered 54.8 per cent, a decrease of 6.9 percentage points compared to December’s seasonally adjusted reading of 61.7 percent.
ISM data showed inventories with US manufacturers were contracting at a faster rate over the past two months: the index for inventories of raw materials decreased by three percentage points to 44 per cent, its lowest reading since December 2012 when it registered 43 per cent.
“A number of comments from the panel cite adverse weather conditions as a factor negatively impacting their businesses in January, while others reflect optimism and increasing volumes in the early stages of 2014,” said Bradley Holcomb, chair of the ISM’s Business Survey Committee
The Journal said that in recent months, the ISM’s assessment of factory activity had been “a bit rosier than what was being reflected” in various regional reports. “We have argued for some time that the recent strength of the ISM is unsustainable,” it quoted Ian Shepherdson, chief economist at economic intelligence provider Pantheon Macroeconomics, as saying.
“The ISM was hugely supported in the second half of last year by a run of very generous seasonals, which is now reversing,” Shepherdson said.
Markit Survey
January data collected by Markit signalled a further expansion of manufacturing production levels, although the latest rise was the least marked for three months.
According to the economy tracker, American manufacturers indicated that output and new business growth rates slowed in January, with some attributing this to disruptions from the extreme weather conditions at the start of the year.
Adjusted for seasonal influences, its headline US Manufacturing PMI registered 53.7 in January, down from an 11-month high of 55 during December and the slowest since October.
The latest reading however remained above the neutral 50 value and pointed to “a solid improvement” in business conditions, Markit said in a statement.
The slowdown reflected in part a drop in new export orders for the first time since September. Nonetheless, manufacturers remained positive in terms of hiring, with employment levels rising for the seventh successive month.
Moreover, it said, slower new order growth helped alleviate pressures on capacity, backlogs of work dropped for the first time since August 2013. Reduced levels of unfinished work also reflected ongoing job creation in the manufacturing sector.
“Many companies are blaming exceptionally cold weather for production and supply chain disruptions, but the underlying trend looks to have remained robust,” said Chris Williamson, Chief Economist at Markit.
“The improvement supports the view that the economy is withstanding the ongoing tapering by the Fed,” Williamson added. “However, it will be important to see the indices bounce back from January’s weather-related weakness to be sure of this resilience.”
Global Stability
The JP Morgan Global Manufacturing PMI – at 52.9 in January – showed little had changed from December’s two-and-a-half year high of 53, and indicated worldwide manufacturing recovery was on track at start of 2014
The composite index, produced by JPMorgan and Markit in association with ISM and IFPSM, a union of 43 purchasing associations globally, signalled expansion in the sector for the 14th successive month.
The expansion indicated by the PMI, which JP Morgan described as “continued and solid”, reflected ongoing growth of production and new orders, which encouraged companies to raise employment for the sixth straight month.
However, the data highlighted widening divergences between the performances of the developed and emerging markets.
The UK remained atop the global PMI growth league rankings in January, despite seeing its rate of expansion ease to a three-month low. Japan was in second-place, with its PMI rising to a near eight-year high. Germany, too, saw its PMI at its highest since May 2011.
The bottom of the table was largely populated by emerging markets, with China, Brazil, Russia, India and Indonesia all in the lower half.
Job creation was recorded in the US, Japan, the UK and for the first time in two years in the Eurozone. Job cuts were signalled in Asia for the first time in four months, as increases in Japan, South Korea and India were offset by losses in China and Indonesia.