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US Manufacturing Rebounded Slightly in January

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US manufacturing PMI fell to 51.2 in December

The US economy contributes about 25.4% toward global gross domestic product, and the manufacturing sector accounts for one-tenth of the country’s economy.

According to Markit, the US manufacturing PMI (purchase managers’ index) rose to 52.4 in January 2016, a rise of 1.2 points from December’s reading of 51.2. US manufacturing has picked up after seeing one of its weakest readings in December.

Manufacturing picked up slightly in January. As a result, the Industrial Select Sector SPDR ETF (XLI) and the SPDR S&P 500 ETF (SPY) have fallen 4.7% and 3.7%, respectively, over the past month as of February 1.

Industrial stocks General Electric Company (GE), United Technologies (UTX), Lockheed Martin (LMT), and Rockwell Automation (ROK) fell 6.7%, 8.4%, 1.6%, and 6.9%, respectively, over the same period.

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Output and new orders rose faster

With improved spending from domestic clients, new orders and output rose in January. Crude prices fell due to an oversupply in the international market, and because of this, energy producers reduced their capital spending in the sector.

Strong dollar impacted export sales

The strengthening of the US dollar against major world currencies was a spoilsport for US export trade in January. As a result, new export orders increased only marginally.

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Manufacturers remained cautious about staff hiring and inventory levels

Though payroll numbers rose, jobs were being created at a slower rate in January. Manufacturers were cautious regarding staff hiring and input buying. Pre-production inventory levels saw a drop in January, whereas finished goods inventories remained broadly unchanged.

Input costs fell again in January

The impact of an increase in wages and salaries was offset by a fall in commodity and crude prices in January. This kept cost inflation lower in the manufacturing sector. Although it was modest, output cost inflation reached its fastest rate since August 2015.

Though manufacturing picked up in January, it’s still at one of its lowest levels. The strong dollar, poor export sales, and falling capital spending may adversely impact the US manufacturing sector in 2016.

In the next article, let’s look at the growth of manufacturing activity in the Eurozone.

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