Manufacturing Gains Seen in Latest ISM Index

Ongoing gains in production, new orders and employment nudged the January ISM manufacturing index higher to 56.0 today for the fifth month in a row and represented the highest index reading since November 2014, when oil prices began to slip.

“The reasons for the surge are varied and there does not seem to be one single factor driving the enthusiasm right now,” said NACM Economist Chris Kuehl, Ph.D. “Those who indicate a reason for their optimism point to hopeful signs from the Trump administration on issues like deregulation, tax reform and infrastructure build. At the same time, there is concern that too little focus has been directed at the ongoing issue of labor shortages.” (See Kuehl’s analysis of manufacturing trends in the latest NACM Credit Managers’ Index.)

The production component of the index increased a point to 61.4, passing the 60 mark for the first time in over two years, while new orders grew to 60.4, according to an analysis of the data by Wells Fargo.

Nondefense capital goods orders ex-aircraft rose 0.8% in December, while core capitals goods orders have increased in six of the past seven months, “…a feat that is quite rare,” said John Silvia, chief economist at Wells Fargo.

Prices are growing in the factory sector as evinced by the prices-paid category of the index, which climbed 14.5 points to 69.0 over the past two months. “Fifteen industries reported paying increased prices for raw materials in January, while none reported paying lower prices,” analysts said.

Meanwhile, the employment component of the index rose 3.3 points to 56.1, the second-highest reading since the beginning of 2013, Wells said. This morning’s strong reading is an encouraging sign for some additional recovery for manufacturing employment in Friday’s jobs report and suggests solid momentum to start 2017, Silvia said.

– Nicholas Stern, editorial associate

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