Huge Miss in ISM; Largest Decline in New Orders in 4 Years; Weather to Blame?

Expectations for continued growth in the US remain overoptimistic.

For example Bloomberg reports the median forecast of 85 economists surveyed by Bloomberg called for a decrease in ISM to 56 from a December reading of 56.5.

Instead, the index plunged to 51.3, a number marginally above the expansion-contraction reading of 50.

Here are the numbers from the January 2014 Manufacturing ISM Report On Business®

ISM at a Glance

Series Data	Jan Index	Dec Index	Percentage Point Change	Direction	Rate of Change	Trend (Months)
PMI™	51.3	56.5	-5.2	Growing	Slower	8
New Orders	51.2	64.4	-13.2	Growing	Slower	8
Production	54.8	61.7	-6.9	Growing	Slower	17
Employment	52.3	55.8	-3.5	Growing	Slower	7
Supplier Deliveries	54.3	53.7	+0.6	Slowing	Faster	8
Inventories	44.0	47.0	-3.0	Contracting	Faster	2
Customers' Inventories	44.0	47.5	-3.5	Too Low	Faster	26
Prices	60.5	53.5	+7.0	Increasing	Faster	6
Backlog of Orders	48.0	51.5	-3.5	Contracting	From Growing	1
Exports	54.5	55.0	-0.5	Growing	Slower	14
Imports	53.5	55.0	-1.5	Growing	Slower	12

ISM Report Snips

PMI

Manufacturing expanded in January as the PMI® registered 51.3 percent, a decrease of 5.2 percentage points when compared to December's seasonally adjusted reading of 56.5 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

New Orders

ISM's New Orders Index registered 51.2 percent in January, a significant decrease of 13.2 percentage points when compared to the December seasonally adjusted reading of 64.4 percent. This represents growth in new orders for the eighth consecutive month, but is also the largest decline in new orders in the last four years. A New Orders Index above 52.1 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).

Production

ISM's Production Index registered 54.8 percent in January, which is a decrease of 6.9 percentage points when compared to the seasonally adjusted 61.7 percent reported in December. This month's reading indicates growth in production for the 17th consecutive month, but at a significantly slower rate than in December. An index above 51.1 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.

Employment

ISM's Employment Index registered 52.3 percent in January, which is 3.5 percentage points lower than the seasonally adjusted 55.8 percent reported in December, and represents the seventh consecutive month of growth in employment, but at a slower rate than in December. An Employment Index above 50.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. 

Weather to Blame?

The median forecast was for an index reading 56. It came in at 51.3, an enormous miss.

A number of ISM respondents and economists blamed the weather. Cold weather certainly did not help auto sales any, but didn't the economists know the weather was cold when they made their forecasts?

I think the economy is slowing more than economists realize, even if weather is partially responsible for this.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
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