PMI Jumps to Expansion Territory for First Time in More than 2 Years - Modern Distribution Management

PMI Jumps to Expansion Territory for First Time in More than 2 Years

It’s the PMI’s first time above 50.0% since October 2022, signaling manufacturing momentum in early 2025.
ISM Manufacturing October 2021

The Institute for Supply Management released its monthly manufacturing Purchasing Managers Index (PMI) on Feb. 3, reflecting January activity, which revealed a considerable increase in production and new orders.

The PMI — regarded as a reliable indicator of overall U.S. industrial economic health — was up 1.7-percentage-points at 50.9% from December’s 49.2%. That’s the PMI’s highest reading since September 2022 (also 50.9%), and it is the PMI’s first time in expansion territory (50.0% or above) since October 2022. Following December’s 0.9-point increase, January’s reading indicated that activity increased at an accelerated pace, and may signal manufacturing momentum in early 2025.

Economists surveyed by Reuters had predicted the PMI would rise to 49.8.

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More granularly, the latest report showed that demand improved with a healthy increase in new orders (remaining in expansion territory), while production increased from December’s performance (returning to expansion territory after eight months in contraction) and inputs continued to accommodate future demand growth.

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The January PMI reading indicated overall U.S. manufacturing sector expansion for the first time in 26 months.

Here is how the overall Manufacturing PMI has looked in bar chart form since the start of 2024:


source: tradingeconomics.com

Of the January PMI’s factoring indexes, two ended the month in contraction territory. The figure was driven by declines of 1.0 in backlog orders and 2.5 in inventories, offset by increases of 4.9 in employment, 3.0 in new orders, 2.4 in new export orders and 1.4 in imports.

“Demand and production improved; and employment expanded. However, staff reductions continued with many companies, but at weaker rates,” ISM Manufacturing Business Survey Committee Chairman Timothy Fiore said in the institute’s December report. Prices growth was moderate, indicating that further growth will put additional pressure on prices. As predicted, maintaining a slower rate of price increases as demand returns will be a major challenge for 2025.”

Fiore added 43% of manufacturing GDP contracted in January, down from 52% in December. The share of sector GDP registering a composite PMI calculation at or below 45% — considered a good barometer of overall manufacturing weakness — was 8% in January, a drastic 41-percentage-point improvement compared to Decembers 49%.

The eight manufacturing industries reporting growth in January were: Textile Mills; Primary Metals; Petroleum & Coal Products; Chemical Products; Machinery; Transportation Equipment; Plastics & Rubber Products; and Electrical Equipment, Appliances & Components.

The eight industries reporting contraction in January were: Nonmetallic Mineral Products; Miscellaneous Manufacturing; Wood Products; Fabricated Metal Products; Furniture & Related Products; Computer & Electronic Products; Paper Products; and Food, Beverage & Tobacco Products.

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