Manufacturing Index rises in January, but still reflects weak conditions

Posted Feb 2nd 2009 11:51AM by Joseph Lazzaro
Filed under: Industry, Economic Data, Recession

In economics, as in broader statistical analysis, researchers caution against reading too much into any one data point.

The reasons are obvious enough: anomalies occur, preliminary statistics are often revised and trends take months, if not quarters, to form.

With the above as a backdrop, January's Institute for Supply Management index was a mild positive, nudging higher to 35.6 from 32.9 in December.

An ISM reading below 50 indicates a contraction; above 50, an expansion. The ISM had fallen for the past year, and has been below the 50 demarcation level since February 2008. Economists surveyed by Bloomberg News had expected the index to drop to 32.6 in January.

The January ISM manufacturing data constituted an upside surprise, but economist Richard Felson did not have to search far and wide to lower expectations.

"Manufacturers continue to cut production jobs, and export sales, which were once a positive for the sector, are now down, and domestic demand is declining. The manufacturing sector is still under pressure," Felson said. "Even at 35.6, the level reflects very weak manufacturing conditions."

Only two of 18 ISM industry categories expanded in January. In January, production increased to 32.1 from 26.3 in December 2008; new orders rose to 33.2 from 23.1 in December 2008.

Economic Analysis: For investors, the 35.6 ISM manufacturing level indicates, like many other segments of the U.S. economy, slack demand conditions. Further, absent private sector demand, that demand has to come from somewhere (fiscal stimulus) for the U.S. economic to have a chance for a recovery in Q3 / Q4.

Tags: Institute for Supply Management, inthenews, ISM, manufacturing sector