After six straight months of contracting, U.S. manufacturing has bounced back based on the ISM Manufacturing Purchasing Managers Index [PMI]. The current PMI is over 50 at a value of 50.9 in January 2020. A value over 50 indicates expansion. Notably, the PMI value was over 60 until fall of 2018 when it dropped precipitously. Although the current reading is a positive sign that the manufacturing in the U.S. is recovering, it is only one month’s reading. The manufacturing turnaround in January was driven by gains in new orders, production, and deliveries. However, employment in the manufacturing sector is still contracting, so optimism should be tempered.
Some U.S. Manufacturing Industries Are Starting To Grow Again
Recent ISM reports have indicated that the slowdown in U.S. manufacturing has been broad and across various manufacturing industries. But, in January 2020, some industries have rebounded, and eight out of the 18 industries reported growth. Listed in order, these are Furniture & Related Products; Wood Products; Food, Beverage & Tobacco Products; Computer & Electronic Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Chemical Products; and Fabricated Metal Products. The remaining industries experienced contraction or were flat. Listed in order, these are Printing & Related Support Activities; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Textile Mills; Transportation Equipment; Primary Metals; and Machinery.
As one can see from the chart below, the sub-indices for the PMI look much better than the past several months. However, employment is still contracting for the sixth straight month, and inventories have been contracting for eight straight months. Importantly, imports and exports are rising again probably reflecting the so-called ‘Phase I’ trade deal between the U.S. and China. The lack of new tariffs probably instilled some confidence in U.S. manufacturers and provided some predictability for the next few months.
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.