Today’s ISM Manufacturing report for the month of January came in weaker than expected for the sixth month in the last seven and the eleventh month in the last fourteen. Needless to say, manufacturing in the US has been in a funk for quite some time. While economists were expecting the headline reading in the ISM report to come in at a level of 48.4, the actual reading was 0.2 weaker at 48.2. That was the same level as last month’s initial reading, but December’s reading was earlier revised down to 48.0.
Depending on your views/bias towards the economy, there are two ways to look at this morning’s ISM report. If you’re pessimistic towards the economy, you will cite the fact that the headline number is at levels last seen during the last recession, has been in contraction for four straight months now, and has consistently missed expectations. If you take a more optimistic approach, you will no doubt key in on the fact that today’s headline reading increased for the first time since last May and that the internals were positive with both Production and New Orders moving back above 50. As usual, the reality sits somewhere in the middle. The report was not good by any means, but at least showed some improvement/stabilization.
Regarding the internals of the report, the table below lists the one-month and one-year change in the headline index and each of its components. Relative to last month, five components increased this month, three were unchanged, and two declined. The biggest increases this month came in Imports, New Orders, and Backlog Orders while Export Orders and Employment saw declines. Given the recent move higher in the dollar, the increase in imports and the decline in exports makes perfect sense and illustrates the difficulties that manufacturers face. The decline in Employment from 48.0 down to 45.9 took that component to its lowest level going back to June 2009. On a y/y basis, all but one component (Customer Inventories) declined, and here again, the biggest decline was in Employment.