ISM Report: Manufacturing Contraction Continues

“The U.S. manufacturing sector again contracted, with the Manufacturing PMI at its lowest level since the coronavirus pandemic recovery began," said Timothy Fiore.

For the third straight month, manufacturing economic activity shrank in January, according to the Institute for Supply Management’s January 2023 manufacturing sector report.

Compared to the December seasonally adjusted reading, the ISM’s Purchasing Manager’s Index fell to 47.4% in January, 1 point lower than recorded in December. Anything lower than 50% represents contraction. The new orders index fell to 42.5%, 2.6 points lower than December. Coming in at 48%, the production index fell 0.6 points from December.

Down only 0.2 points from December’s seasonally adjusted reading, the employment index figure of 50.6% represents expansion territory.

Timothy Fiore, chair of the ISM’s manufacturing business survey committee, noted that “New order rates remain depressed due to buyer and supplier disagreements regarding price levels and delivery lead times; these should be resolved by the second quarter. In the meantime, panelists’ companies are attempting to maintain head-count levels during the anticipated slow first half in preparation for a strong performance in the second half of 2023.”

In a separate report Wednesday, payroll company ADP noted that companies continue to hire, but at a much lower pace than in December. ADP economists warned against reading too much into January's figures as bad weather across the U.S. might have played a significant role.

In the comments of the survey, respondents mention problems that continue to trouble the manufacturing sector, such as supply chain issues, recession worries, and capacity constraints.

Although, some comments portray optimism for the coming year. One respondent, an executive in chemical products, noted “Conditions are reasonable. Sales are a little better than planned. Cost pressures are easing for most products. There have been a lot fewer supply disruptions so far this year, and few expected in the short term. The crystal ball remains a little blurry for the rest of 2023.”

Written by: Anna Smith, news editor, for Industry Week.