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Home > Industrials > Key manufacturing index shows expansion in January, but may not be sustainable

Key manufacturing index shows expansion in January, but may not be sustainable

Feb. 3, 2020 by Shruti Gupta

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The Institute for Supply Management on Monday said its purchasing managers’ index (PMI) increased to 50.9 in January against an expectation of 48.5, rising above 50 for the first time since July 2019, and from a four-year low of 47.8 in December. An indicator above 50 is considered an expansion in manufacturing activity, while a reading below 50 indicates contraction. The January expansion was driven by an increase in new orders and production components. Manufacturing employment, however, contracted at a slower pace.

While the production boost may be attributed to the Phase 1 trade deal between the United States and China and could be a preliminary sign that manufacturing is bottoming out, there are a few aspects that may suggest otherwise. The ISM numbers don’t reflect the Boeing production halt of the 737 Max aircraft, which was suspended only in mid-January. The aerospace giant’s domestic and global supply chains have a far-reaching impact on manufacturing activity. The numbers also don’t reflect any potential impact of the coronavirus on the global supply chains. The regional Fed surveys also provide mixed signals, with some regions reflecting contraction in manufacturing activity and others showing expansion. Companies continue to hold back on capital investments.

The PMI captures the sentiments of manufacturers; while it provides an optimistic picture, it will take sustained signs of global demand stabilization to translate into a durable manufacturing upturn.

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Filed Under: Industrials Tagged With: ISM, ISM purchasing managers' index, manufacturing, shruti gupta

About Shruti Gupta

Shruti Gupta is a senior manager and industrial products senior analyst with RSM US. She has more than 15 years of experience advising multinational clients on their transfer pricing planning, supply chain structuring, global compliance and controversy management strategies.

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