US ‘ISM Manufacturing PMI’ falls in January below expectations

ISM Manufacturing PMI fell to its weakest since November 2020 in January at 57.6. The Employment subindex hit its highest since last March.

According to a survey compiled by the Institute of Supply Management, US Manufacturing PMI fell to 57.6 in January from 58.7 in December. That was a little higher than the expected reading of 57.5, but nonetheless and marked the weakest reading since November 2020.

Subindices:
Prices Paid rose to 76.1 from 68.2.
New Orders fell to 57.9 from 61.0, its lowest since June 2020.
Employment rose to 54.5 from 53.9, its highest since March 2021.

As for markets’ reaction, gold prices are struggling to hold on to the critical psychological level of $1,800 an ounce as US manufacturing sees solid momentum in January, according to the latest report from the Institute of Supply Management (ISM).

On Tuesday, the ISM said its manufacturing index fell to 57.6, last month down from December’s reading of 58.7%. The data was relatively in line with expectations.

The gold market is holding on to modest gains even as prices briefly drop below $1,800 an ounce In initial reaction to the latest economic numbers. February gold futures last traded at $1,798.40 an ounce, up 0.19% on the day.

Although activity in the manufacturing sector remained steady last month, the report noted a sharp rise in inflation pressures. The report’s Price Index rose to 76.1%, up from December’s reading of 68.2%.

The US manufacturing sector remains in a demand-driven, supply chain-constrained environment, but January was the third straight month with indications of improvements in labor resources and supplier delivery performance.

“Still, there were shortages of critical intermediate materials, difficulties in transporting products and lack of direct labor on factory floors due to the COVID-19 omicron variant,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

Looking at other components of the report, the New Orders Index fell to 57.9% down compared to December’s reading of 61%. The Production Index dropped to 57.8%, down from the previous reading of 59.4 percent.

The report also noted healthy momentum in the labor market. The Employment Index rose to 54.5%, up from December’s reading of 53.9 percent.

“For the third month in a row, Business Survey Committee panelists’ comments suggest month-over-month improvement on hiring, offset by backfilling required to address employee turnover at a higher rate, supplier performance and improvements in the transportation sector,” said Fiore.

The ISM survey is arguably even more positive than it looks given that, with new infections now falling sharply, any hit to activity and employment is likely to be reversed this month. The index is painting an overly optimistic picture of activity. More generally, with the US economy running up against capacity constraints and global economic growth likely to slow, there are several other reasons to expect manufacturing output growth to trend lower over the coming months.