Manufacturing ISM Sinks to a New Low for the Move, Repeats Recession Warning

Please consider the January 2023 Manufacturing ISM^® Report On Business®

The January Manufacturing PMI® registered 47.4 percent, 1 percentage point lower than the seasonally adjusted 48.4 percent recorded in December. Regarding the overall economy, this figure indicates a second month of contraction after a 30-month period of expansion. The Manufacturing PMI® figure is the lowest since May 2020, when it registered a seasonally adjusted 43.5 percent.

The U.S. manufacturing sector again contracted, with the Manufacturing PMI® at its lowest level since the coronavirus pandemic recovery began. With Business Survey Committee panelists reporting softening new order rates over the previous nine months, the January composite index reading reflects companies slowing outputs to better match demand in the first half of 2023 and prepare for growth in the second half of the year. Demand eased, with the (1) New Orders Index contracting strongly, (2) New Export Orders Index still below 50 percent but improving, (3) Customers’ Inventories Index contracting slightly, a positive for future production and (4) Backlog of Orders Index recovering for a second month, but still in strong contraction.

Of the six biggest manufacturing industries, one — Transportation Equipment — registered growth in January.

Unfounded Optimism

The Employment Index remained just above 50 percent and the Production Index logged a second month in contraction territory. Panelists’ companies are indicating that they are not going to substantially reduce head counts as they are positive about the second half of the year.

The ISM is a diffusion index, signaling direction not amount. For example a firm hiring 10 workers and a firm laying off 200 workers balances out.

Diffusion indexes have issues. And there is a survival bias and a weighting bias.

Excluding the early months of the pandemic, manufacturing is at the lowest level since 2009.

Nearly everyone is waiting for the 2023 recession that started last year. For discussion, please see A Better Definition of Money and Lacy Hunt’s Thoughts on When a Recession Will Start

This post originated on MishTalk.Com.

Thanks for Tuning In!

Please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

If you have subscribed and do not get email alerts, please check your spam folder.

Mish