Manufacturing slowed in January as demand moderated from a recent high in November, according to a report from the Institute for Supply Management on Tuesday.
The top-line purchasing managers’ index fell to 57.6 on the month from 58.8 previously—the lowest since November 2020. Still, one should not overlook the fact that January marked the 20th month in a row of expansion. A PMI above 48.7%, over a period of time, indicates overall economic expansion.
After a sharp decline in December, prices paid for manufacturing products picked up again in January as the subindex for prices rose to 76.1 from 68.2. Although the subindex was much lower than its recent peak in October of 85.7, the increase in January did not help ease inflation concerns.
While issues with employment and input shortages continued to improve in recent months, the sector remained constrained by supply bottlenecks and a tight labor market, which was magnified by the omicron surge in late December and early January.
And there is no sign that the labor market will start to loosen up anytime soon, according to a separate report on jobs from the Bureau of Labor Statistics.
Job openings, a proxy for labor demand, exceeded 10 million for the seventh month in a row, rising to 10.9 million in December from 10.8 million. As the number of unemployed workers, a proxy for labor supply, continued to decline at the same time, the number of job openings per unemployed worker reached another all-time high in December at 1.7.
The hiring rate did not seem to help untie the significant gap between demand and supply as it slowed by 0.2 percentage points in December to 4.2%, the lowest since last June, when it was 4.7%.
The quit rate—which has been closely watched in recent months—eased to 2.9% from the all-time high of 3.0%. The quit rate declined in most sectors, except for retail trade and information technology.
The takeaway
There is still a lot of room for the manufacturing sector to grow as we continue to see improvement in supply-chain issues, especially in inventory and the backlog of orders. But labor shortages will continue to hamper growth as the market remains imbalanced between supply and demand, at least for the first half of the year.
