The January ISM manufacturing index fell 1 pt m/o/m to 47.4 and that was below the estimate of 48. It marks the 3rd straight month below 50. Ex Covid, this is the weakest figure since June 2009. New orders were very soft, declining to 42.5 from 45.1. Ex Covid, March 2009 was the last time that level was seen. Backlogs rose by 2 pts but are still at only 43.4. Manufacturing inventories fell to just above 50 at 50.2, the least since July 2021 and points to the drag that inventories will be on Q1 after the lift it gave to Q4. Customer inventories fell .8 pts to 47.4. Export orders were below 50 for a 6th straight month but less so as it rose by 3.2 pts m/o/m to 49.4. Imports at 47.8 are under 50 for a 3rd month. Employment was little changed at 50.6 vs 50.8 last month and ISM said “panelists’ companies are attempting to maintain head count levels during the anticipated slow first half in preparation for a strong performance in the 2nd half of 2023.” Delivery times rose a touch and prices paid bounced back by 5.1 pts to 44.5, a 3 month high but still under 50.
Bottom line, if you needed a nudge to be convinced whether US manufacturing is in a recession, 15 of 18 industries asked are seeing a decline in their business. Just 2 (transportation equipment and misc mfr’g) are seeing growth for the 2nd straight month with the other one experiencing no change. There was not one industry that saw a rise in new orders. The last time I saw that was in February 2009 and it never happened during the Covid shutdowns.
The S&P Global manufacturing PMI which covers more businesses than ISM, including small and medium sized ones, saw its final index at 46.9, also below 50 for a 3rd month. They said it “remains at one of the lowest levels recorded since the global financial crisis, including a worryingly steep rate of decline in the health of the goods producing sector.”
Here are some notable quotes from ISM:
“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]
“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]
“In the past two weeks, we are seeing a slowing of new orders.” [Primary Metals]
ISM Mfr’g
New Orders
Job openings in December got back to 11mm from 10.4mm in November and that was about 700k more than expected. The hiring rate was 4%, up from 3.9% in November and unchanged with October. The quit rate stayed the same at 2.7%.
To my continued point of the higher demand for workers needed on site, there was a 400k job opening increase for leisure/hospitality and more jobs needed in trade and transport. Job openings continued to shrink in Information, getting cut in half in December to 109k from 216k and this includes the tech sector. Employers of course have less need for people in real estate/rental/leasing and job openings there fell but did rise in other areas of finance and insurance. Construction openings rose but fell for manufacturing.
Bottom line to all the data, because Powell is so focused on the wage side of the labor market and the low unemployment rate as we know, yields backed up a bit after the data with the job opening news offsetting the weakness in manufacturing in terms of its market moving impact.
Job Openings
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.