U.S. Manufacturing Activity Expands at a Slower Rate in January

Activity in the U.S. manufacturing sector took a step back in January, expanding at a slower rate compared to December according to the Institute for Supply Management’s survey of manufacturing executives released February 1st.

Manufacturing Activity in the U.S. January 2022

The ISM reports its index of manufacturing activity dipped 1.2% in January to a reading of 57.6%, following a 2.4% decreased reported in December. This suggests that although manufacturing is still well into expansion territory, demand and output have waned as the sector continues to face supply chain and labor challenges as the omicron COVID variant circulates. January’s reading of 57.6% is the lowest the index has been since October 2020.

Demand and output continued to grow in January, though at a slower rate. Supplier deliveries slowed and backlogs grew as did both exports and imports.

The New Orders index declined 3.1% to a reading of 57.9%, while the Production Index fell 1.6% to 59.4%.

The much-watched Prices Index spiked 7.9% to a reading of 76.1% after falling considerably in December. Commodities significantly up in price included adhesives, paint, aluminum, packaging, paper products, and hydraulic components. Commodities down in price included plastic resins, carbon steel, hot rolled steel, and natural gas.

Meanwhile, the ISM’s Employment Index registered a 54.5%--0.6% higher than December.

Timothy Fiore, Chair of the ISM committee stated the sector “remains in a demand-driven, supply chain-constrained environment, but January was the third straight month with indications of improvements in labor resources and supplier delivery performance.” Fiore went on to say that challenges remained in the sector, notably materials shortages, transportation issues and a lack of labor as the omicron COVID variant circulates.

Optimism among manufacturing executives was slightly stronger than seen in December, with 7 positive comments registered for every one negative comment (compared to December’s 6:1 ratio).

In January, fourteen of eighteen industries reported growth, strongest in apparel, leather & allied products; furniture & related products; miscellaneous manufacturing; non-metallic mineral products; and machinery.

What Manufacturers Are Saying About Business Conditions

According to Fiore, comments from executives surveyed by the ISM reveals that “For the third month in a row, Business Survey Committee panelists’ comments suggest month-over-month improvement on hiring, offset by backfilling required to address employee turnover at a slower rate, supplier performance, and improvements in the transportation sector.

Said one executive in the chemical industry: “We are experiencing massive interruptions to our production due to supplier COVID-19 problems limiting their manufacturing of key raw (materials) like steel cans and chemicals.”

Notably, MNI has seen a spike in searches for chemicals on its industrial marketplace IndustryNet for most of January, with chemicals ranking as its most popular industrial category for two weeks running.

Another executive in the in the computer & electronics sector reported “While there has been some improvement in materials making it to our factories and logistics centers, we are still constrained by (a lack of) qualified labor. Orders so far are not being cancelled, but we are concerned that customers may be losing patience.”

Meanwhile, one respondent in the nonmetallic mineral products sector said, “The supply chain crunch may be loosening a bit; however, specific original equipment manufacturer (OEM) parts and equipment now have lead times that we have not experienced before.”

And another in the electrical equipment, appliances & components sector noted: “Strong backlog of orders coming into the new year. Potential to beat target revenue, depending on availability of purchased product.”

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