Manufacturing, Purchasing Dipped in January

Don Hogsett, February 6, 2006

The manufacturing sector, a major driver of the U.S. economy, remained stuck in neutral during January, still growing, but only modestly and at a steadily slowing pace.

In a widely watched canvass of manufacturing companies, the nation's purchasing managers said their monthly gauge of activity slipped for a third straight month, declining by 0.8 percentage points to a level of 54.8, hovering somewhat above the midpoint. A reading of more than 50 indicates growth in the sector, while anything beneath signals contraction.

The Purchasing Managers' Index, compiled by the Institute for Supply Management, is now at its lowest level in five months, and stands 1.6 points beneath its year-ago level of 56.4. Even so, the sector is still growing, and stands 3.0 percentage points above its 13-month low of 51.8.

Putting downward pressure on the sector were slowed growth in new orders, production and employment; and higher prices for supplies and raw materials. Still a worry are prices for raw materials and supplies, which ticked up by two points to a level of 65.0.

On the upside, but not enough to offset weakness elsewhere, gains were recorded in order backlogs and export orders, and customers' inventories were down, suggesting a need to reorder goods at some point.

New orders declined by 1.1 percentage points during the month, while production slipped in lockstep, down 1.2 percentage points. Employment declined by 2.3 percentage points.

On a more positive note, order backlogs, which had slipped beneath the midpoint in December, recovered in January and jumped up by 4.0 points to a 53.5. reading.

January snapshot
Manufacturing benchmarks
Month-over-month percentage change

Source: Institute for Supply Management
Purchasing Managers' Index -0.8%
New Orders -1.1
Production -1.2
Employment -2.3
Inventories -0.8
Customers' Inventories -2.0
Prices Manufacturers Pay 2.0
Order Backlogs 4.0
Export Orders 4.2
Imports 4.2

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