ISM Manufacturing: Holds Near Cycle Highs

Bottom Line: ISM fell just slightly in January, holding near its recent highs and coming in sharply better than regional surveys suggested. The prices paid component hit its highest level in 5+ years as purchasing managers reported higher input costs. While employment grew, the pace of gains was sharply lower in the first month of the new year with the index falling below its 12-month average as some respondents reported very tight labor markets. While reports are still strong across most industries, the number of industries reporting contraction is rising -- 4 of 18 industries surveyed reported weakness: Printing & Related Support Activities; Wood Products; Furniture & Related Products; and Nonmetallic Mineral Products. The ISM Manufacturing Index FELL by 0.2 points in January to 59.1%, compared with market expectations for a smaller decline to a 58.2% This indicates that manufacturing activity expanded again last month.

• New Orders declined modestly from 67.4% to 65.4%. Meanwhile, Export Orders grew modestly.
• Production declined slightly from 65.2% to 64.5%. Consequently, Order Backlogs grew sharply.
• Inventories grew moderately from 48.5% to 52.3%. They are modestly above the average survey level for the last twelve months.
• Employment declined moderately from 58.1% to 54.2%, suggesting there will be modest factory job creation in the upcoming payroll employment report.
• Prices grew moderately.

Quotes from Survey:

• "Sales nationally and internationally are strong in Q1. We are increasing our CapEx spend by 30 percent to 40 percent over [the] previous year." (Chemical Products)
• "We have heard reports of additional business due to the recent reduction of tax rates." (Machinery)
• "Business outlook is positive on all fronts right now with our customers. Budgets are being approved for new projects, and component prices from suppliers have temporarily stabilized." (Computer & Electronic Products)
• "Our usual winter slowdown has not occurred, and we are very busy with new orders." (Furniture & Related Products)
• "Slow start to 2018; pricing on metals is heading up and quotes/orders are picking up as well." (Fabricated Metal Products)
• "Overall, business remains steady. With several key programs to begin ramping up in the industry, outlook looks good for calendar year 2018." (Transportation Equipment)
• "Employment is very tight in our area." (Food, Beverage & Tobacco Products)
• "Business continues to strengthen." (Paper Products)
• "Business is starting the new year strong. Consumer confidence seems to be driving a lot of our customers' order requirements higher." (Plastics & Rubber Products)