PMI steadies itself in January reading

ISM Index climbs to 48.2% to end a six-month slide as oil prices affect manufacturing sector growth.
By Bob Vavra February 1, 2016

ISM Index climbs to 48.2% to end a six-month slide as oil prices affect manufacturing sector growth. CFE Media file photoThe Institute for Supply Management’s (ISM) monthly PMI Index rose slightly in January, but remained under the 50% threshold for manufacturing expansion for the fourth consecutive month.

The PMI Index was at 48.2% in January, but given that the Index had declined for the previous six months to a low in December of 48.0%, any halt of that streak might be seen as a good sign. For Bradley Holcomb, chairman of the ISM Business Supply Committee, it was at least a mixed bag of news as the new year began.

"Comments from the panel indicate a mix ranging from strong to soft orders, as eight of our 18 industries report an increase in orders, and seven industries report a decrease in orders," Holcomb said.

While January’s stock market decline didn’t factor in the overall numbers, the drop in oil and gas prices continue to provide threats and obstacles for companies. "The oil and gas sector continues to be challenged by low oil and gas prices," said one committee member in that sector. "Risk of suppliers filing for bankruptcy and reducing their workforce is becoming an increasing risk. Our company workforce is also declining."

However, some companies are benefiting from reduced oil prices. A committee member in chemical products noted, "Business this month is better than last month and better than this period last year. Reduced oil and basic chemical prices providing favorable margin comparisons."

Among the comments from other sectors:

  • "Huge rollout in wireless in 2016 across all markets. We should be very, very busy." (Computer & Electronic Products)
  • "We are a bit slower, but staying busy." (Fabricated Metal Products)
  • "Business is still strong, but slowing." (Transportation Equipment)
  • "2016 starting off with strong orders." (Primary Metals)
  • "Market is sluggish to start the year." (Wood Products)
  • "Medical device continues to be strong." (Miscellaneous Manufacturing)
  • "Overall demand is higher than expected for post-holiday season." (Plastics & Rubber Products)
  • "Much worldwide macroeconomic uncertainty affecting our business. Business confidence seems low." (Food, Beverage & Tobacco Products)

Some of the underlying indexes showed solid growth in January. In particular, the New Orders Index rose 2.7 percentage points to 51.5% and the Production Index moved back into growth after two months of contraction with 50.2%.