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Manufacturing activity took step forward in January

2/11/2020

Manufacturing activity took step forward in January

For some time now, growth in the manufacturing sector has been slowing down, and occasionally even reversing course altogether. However, in the first month of 2020, production picked back up, providing the industry with some much-needed positives.

Nationwide, economic activity in both the manufacturing industry and the economy overall grew once again in January, according to the latest Report on Business from the Institute for Supply Management. In the latter case, it was the 129th straight month of growth, inching closer to 11 straight years of improvement. In the former, the ISM's manufacturing index grew 3.1% to a reading of 50.9. Anything above 50 is considered a period of growth.

It was the first time since July that the industry saw growth pick up speed once again, the report said. Largely, the sector had been plagued by concerns over the ongoing trade war with China in recent months. In the most recent readings, the ISM's index improved largely because of gains in production, new orders, employment, inventories, prices, exports and more.

"Business has picked up considerably," one computer and electronic products manufacturing executive told the ISM. "Many of our suppliers are working at or above full capacity. Tariffs are still a concern and are believed to be a factor in short supply and higher prices of electronic parts. Our profit margin has been somewhat negatively affected by high tariffs, particularly on electronic parts from China."

Reversing course
This came just a month after the Board of Governors of the Federal Reserve System reported national industrial production slipped 0.3% in December, largely due to a decline in the output from utilities producers (resulting from unseasonable warmth in many parts of the country). Manufacturers, meanwhile, saw production rise 0.2%. Indeed, the manufacturing sector's output in December was at a reading of 105, the second-highest number in the final six months of the year, and the highest observed since August. However, that number was also down from 106.3 at the end of December 2018.

Growth in manufacturing, though, was specifically hampered by the automotive industry, which saw output of light vehicles slip by 900,000 units on an annual basis, the report said. Without that setback - which dragged motor vehicle and part production down 4.6% - the overall manufacturing output would have ticked up 0.5% rather than growing by 0.2%.

A granular issue?
Meanwhile, the Kansas City Fed found manufacturing activity in its region - the second-largest geographical district the national Fed oversees - started to get back on track in January. After a decline of 2 points the KC Fed's composite index in November and 5 in December, January's number was only a drop of 1 point, indicating a smoothing of some of the issues experienced of late.

Moreover, while prices were down on a monthly basis, expectations from manufacturers in the region - which covers a large swath of the Midwest and some mountain states - expectations for prices over the next six months took a big step forward.

For all these reasons and more, manufacturers have to be aware of the changing landscape in their sector so they can make the best possible decisions in the future.

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