Summary
Today's report from the Institute for Supply Management showed an unexpected decline in manufacturing activity during January. Price pressures eased during the month, but they remained at levels high by ISM's measurement standards.
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Earlier today, the Institute for Supply Management reported that its index measuring the economy's January manufacturing activity (ISM's "PMI") came in at a reading of 56.4, down from December's 57.3. The January result was below a consensus forecast that was predicting something around 57.7.
This index is configured such that readings above 50.0 indicate sector expansion. Readings below this value are consistent with contraction.
(NOTE: December and prior data have been revised to incorporate new US Department of Commerce seasonal-adjustment factors used by ISM. In its manufacturing index, ISM does not seasonally adjust the price component, discussed below.)
The January decline in the PMI was the second in a row, and it marked the fifth time over the last seven months in which a monthly value was lower than in the preceding month. And while January's 56.4 reading denoted decent manufacturing-sector strength, it still remained comfortably below the index's most recent peak -- 62.8 in January of last year.
The PMI's price component fell 3.0 points in January, to 69.0. However, as in the overall index, values above 50.0 indicate expansion, so January's 69.0 reading remained quite strong. In fact, January represented the 35th consecutive month in which this measure showed rising prices. In May of 2003, the recent trough, the price component stood at a much lower 51.5, versus the January 2005 result of 69.0.
If firms are passing these higher prices along, it is contributing to inflationary pressures. And if they are not able to pass them along, rising prices are likely contributing to pressure on profit margins.
ISM announced that 45% of its survey respondents reported higher prices during January, while 7% reported lower ones. This is an improvement from December's results, which were 52% and 8%, respectively. However, the overall shift in skew from the trough during the summer of 2003 remained intact. For instance, in August 2003, these numbers were 19%/13%.
To illustrate how the numbers have been trending, the following table examines overall and price data over the last 25 months. The final section of this section breaks out specific commodities that were up or down in price during January, as reported to ISM by its survey respondents.
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INSTITUTE FOR SUPPLY MANAGEMENT PMI INDEX
-- TOTAL INDEX AND PRICE COMPONENT
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Respondents Reporting
Higher, Lower, or
Unchanged Prices
Month/ Overall Price ---------------------
Year Index Index Higher Lower Unch.
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01/05 56.4 69.0 45% 7% 48%
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12/04 57.3 72.0 52% 8% 40%
11/04 57.6 74.0 55% 7% 38%
10/04 57.5 78.5 61% 4% 35%
09/04 59.1 76.0 55% 3% 42%
08/04 59.6 81.5 67% 4% 29%
07/04 61.6 77.0 58% 4% 38%
06/04 61.2 81.0 66% 4% 30%
05/04 62.6 86.0 74% 2% 24%
04/04 62.3 88.0 77% 1% 22%
03/04 62.3 86.0 73% 1% 26%
02/04 62.1 81.5 65% 2% 33%
01/04 62.8 75.5 54% 3% 43%
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12/03 62.1 66.0 37% 5% 58%
11/03 61.3 64.0 33% 5% 62%
10/03 57.7 58.5 26% 9% 65%
09/03 55.1 56.0 21% 9% 70%
08/03 55.6 53.0 19% 13% 68%
07/03 52.5 53.0 21% 15% 64%
06/03 50.4 56.5 26% 13% 61%
05/03 49.8 51.5 21% 18% 61%
04/03 46.1 63.5 37% 10% 53%
03/03 46.4 70.0 47% 7% 46%
02/03 49.9 65.5 <------ NA ------>
01/03 52.8 57.5 <------ NA ------>
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On Thursday (2/3), ISM will report its index covering activity in the economy's non-manufacturing sector.
Commodities Reported Up in Price During January:
Adhesives; Aluminum, 15th month; Aluminum Products, 4th month; Butadiene, 2nd month; Caustic Soda, 9th month; Chemicals, 12th month; Copper, 4th month; Corrugated Containers, 12th month; Diesel Fuel, 5th month; Freight, 11th month; High-Density Polyethylene Resins; MRO Items; Natural Gas*, 30th month; Paper, 11th month; Petroleum Products; Plastic Products (various forms) — 12th month; Plastics, 6th month; Polyethylene, 5th month; Polyethylene Film; Polypropylene Resins; PVC Products (various forms); Resins, 6th month; Specialty Chemicals; Stainless Steel, 5th month; Steel, 16th month; Steel Products (various forms), 6th month; Titanium Dioxide; and Vinyls, 2nd month.
Commodities Reported Down in Price During January:
Gasoline, 2nd month; Natural Gas*, 3rd month; and Steel Scrap.
*Reported as both up and down in price.
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