The Institute for Supply Management’s monthly Purchasing Managers Index (PMI) — a well-regarded barometer of the U.S. industrial economy — contracted further in January as it continues to set and reset its lowest mark since the height of the COVID-19 pandemic.

The January PMI mark of 47.4% was a full percentage point lower than December and the lowest reading since May 2020’s 43.5%. November 2022’s reading (49.0) snapped 29 straight months of expansion (anything above 50.0 or above). 

January was the index’s ninth consecutive month-to-month decline.

After carrying strong momentum to the end of 2021 and holding in the high 50s the first couple months of 2022, the PMI has steadily decreased since. It slid to 53.0 in June and 50.9 in September and has only fallen further. A year earlier, December 2021’s PMI registered at 59.9.

“With Business Survey Committee panelists reporting softening new order rates over the previous nine months, the January composite index reading reflects companies slowing outputs to better match demand in the first half of 2023 and prepare for growth in the second half of the year,” commented Timothy Fiore, CPSM, C.P.M. and chair of the ISM Manufacturing Business Survey Committee.

Of the PMI’s 10 factoring indexes, only two ended January in expansion territory. Five of them saw month-to-month declines in January, with four of them of at least half a percentage point: 

• New Orders fell 2.6 points to 42.5%; 
• Production fell 0.6 points to 48.0%; 
• Employment dipped 0.2 points to 50.6%; 
• Inventories fell 2.1 points to 50.2%; and 
• Customers’ Inventories fell 0.8 points to 47.4%. 

Gaining from December were: 

• Supplier Deliveries, up 0.5 points to 45.6%; 
• Prices, up 5.1 points to 44.5%; 
• Backlog of Orders, up 2.0 points to 43.4%; 
• New Export Orders, up 3.2 points to 49.4%; and 
• Imports, up 2.7 points to 47.8%

MANUFACTURING AT A GLANCE – January 2023

ISM noted that, of the six biggest manufacturing industries, only one — Transportation Equipment — registered expansion in January, albeit weak. None of the 18 industries ISM tracks reported growth in new orders, following three in December. Seventeen of them reported a month-to-month decline in new orders, in the following order: Wood Products; Textile Mills; Apparel, Leather & Allied Products; Paper Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Plastics & Rubber Products; Primary Metals; Fabricated Metal Products; Machinery; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Chemical Products; Computer & Electronic Products; and Transportation Equipment.

“Uncertainty regarding future demand, buyer/supplier disagreements on prices and lead times, and hangover from overordering in 2021 and 2022 continue to weigh heavily on the index,” Fiore said.

“Price and lead time declines as well as backlog contraction should encourage buyers to reenter the market and sales agents to be more aggressive in seeking new business, but clearly this did not occur in December,” Fiore said. “Slowing in new order rates to adjust for overordering in 2021 and the first quarter of 2022 has been underway since March of this year.”

On the production side, only one industry in the top six — Computer & Electronic Products — expanded in January, compared to four in December. Fourteen of the 18 industries ISM tracks reported a decrease, and three reported no change.

For employment, five of the 18 tracked industries reported growth: Nonmetallic Mineral Products; Machinery; Plastics & Rubber Products; Transportation Equipment; and Fabricat3d Metal Products. Nine industries reported a decrease, and four reported no change.

Commentary

ISM’s January Report on Business included a selection of commentary across the 18 industries it tracks:

• “Business is still strong, but we have begun to see softening in some pricing, and lead times seem to be improving.” [Computer & Electronic Products]
• “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.” [Chemical Products]
• “Sales have dropped (as expected) at the beginning of the year. Forecast from the sales department is showing even lower sales then we expected. If this holds true, inventory levels will rise slightly over next month and a half.” [Food, Beverage & Tobacco Products]
• “Supply chain issues continue to plague our production schedules. Transportation from our overseas suppliers is also contributing to delays. Lead times have doubled for critical electronics, gaskets, sealants, and specialized steel.” [Transportation Equipment]
• “Strong big ag demand continues to drive heightened demand for parts. Large construction/off highway original equipment manufacturers have strong demand as well. Creating continued capacity constraints with the supply base.” [Machinery]
• “Some business segments showing demand softening globally. Many materials showing improved lead times as well as cost deflation.” [Electrical Equipment, Appliances & Components]
• “Thus far, the outlook for the first half of 2023 looks very soft. Demand for our products has taken a sharp downward turn. Our inventories are high, as well as our customers’. It seems everyone is bracing for a recession.” [Fabricated Metal Products]
• “Customers are being quite aggressive in pursuing price decreases, far beyond the price relief we are actually receiving from our suppliers.” [Miscellaneous Manufacturing]
• “Industrial construction is strong. Commercial construction is slower.” [Nonmetallic Mineral Products]
• “In the past two weeks, we are seeing a slowing of new orders.” [Primary Metals]