Supply Chain More Optimistic About Q2 Component Demand
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Buoyed by growth in both new orders and production, the U.S. manufacturing industry expanded for the fifth consecutive month in January, reaching its highest level since 2014.
The nation’s leading factory index, the Institute for Supply Management’s PMI, reached 56.0 in January, increasing by 1.5 percent from December’s level of 54.5. The new orders index registered 60.4 percent, an increase of 0.1 percent from December’s reading of 60.3 percent; and production grew 2 percent to 61.4. Any number above 50 indicates the industry is expanding.
Steady growth is also encouraging factories to hire. The ISM’s employment index jumped by 3.5 percent in January to 56.1—its highest level since August 2014. Twelve of the 18 manufacturing industries tracked by ISM reported growth during the first month of the year, although feedback from the computer and electronics sector was that January revenue targets were slightly lower following a big month of shipments in December.
"The PMI and its supporting indexes are strongly in alignment," said Bradley J. Holcomb, chair of the ISM's Manufacturing Business Survey Committee, “underscoring overall strength in the market. One area of concern, however, is pricing: the prices index grew 3.5 percent to 69.0 in January. That’s a pretty high number and prices have been growing for 11 consecutive months.”
Prices may simply be regaining lost ground. “Prior to this 11-month run we had 18 months of contraction from November of 2014 to February of 2016,” Holcomb said. “I would suspect some of this is making up for lost ground: if you look at where oil prices were you can see they haven’t yet recovered from their previous high.”
Commodities that went up in price since December include aluminum; copper; methanol; natural gas; nickel; paper; petroleum fuels; steel and steel products; and titanium dioxide, according to the ISM. "Sales bookings are exceeding expectations," said one manufacturer of machinery. "We are starting to see supply shortages in hot-rolled steel due to the curtailment of imports."
New export orders declined by 1.5 percent in January to reach 54.5; and imports remain flat at 50.0.
"It’s all good,” Holcomb concluded. “The PMI, new orders, and production indexes all registered their highest levels since November of 2014. We’re kicking off the new year very well and the trends are consistent with the [Trump] administration’s idea of business supporting business which, in turn, supports everything else. The economy is generally positive and all the manufacturing numbers support that."
According to Reuters, global manufacturing trends are likewise positive: "Euro zone factories registered the fastest activity rate for nearly six years, China's activity expanded for the sixth month and Japanese manufacturing growth was the fastest in almost three years. Even in Britain, where a slump in sterling since the June referendum stoked the sharpest rise in factory costs on record last month, growth remained robust," the news service reported.
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