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United States PMI January 2020

United States: ISM manufacturing index returns to expansionary territory for first time in 6 months in January

The Institute for Supply Management (ISM) manufacturing index rose to 50.9 in January from 47.8 in December, beating market expectations of 48.5 and marking the best performance since last July. Consequently, the index landed above the 50-threshold that separates expansion from contraction in the sector.

The improvement in factory conditions in January came on rebounding new orders and production. Stronger demand was buttressed by growth in four of the top six industry sectors, while new export sales recorded their best turnout since September 2018. Consequently, manufacturers responded by ramping up output. Employment fell for the sixth consecutive month, but at a softer pace in January relative to December.”. Meanwhile, backlogs of work fell for the ninth month running.

Inputs dragged on the headline PMI print in January, mainly due to a sharper fall in inventories than in the prior month. On the other hand, supplier delivery times lengthened in January; however, supplier capacity remains sufficient to support current output levels. Meanwhile, imports returned to growth in January, with anecdotes suggesting the Lunar New Year was a factor behind the rebound.

In terms of prices, input costs hit a ten-month high in January, pushed up by higher raw material prices particularly for base metals.

Comments from ISM respondents highlight improved demand at the outset of the year, however also alluded to the ongoing impact of tariffs, as one respondent noted: “Business has picked up considerably. Many of our suppliers are working at or above full capacity. Tariffs are still a concern […] Our profit margin has been somewhat negatively affected by high tariffs, particularly on electronic parts from China.”

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