Dive Brief:
- The U.S. manufacturing sector showed signs of life in January, with the Institute for Supply Management's purchasing manager's index (PMI) rising from 47.8% in December 2019 to 50.9% last month. A reading above 50% marks sector expansion, while a reading under 50% signals contraction.
- "Rising demand from households has helped support production in recent months, but January saw a marked slowing in new orders for consumer goods," Chris Williamson, chief business economist at IHS Markit said in a statement. "Production of capital goods such as business equipment, plant and machinery meanwhile fell for the first time in almost four years, hinting at weakened business investment."
- In 18 of the manufacturing sub-sectors ISM tracks, eight reported seeing some growth in January, namely consumer electronics, furniture, food and beverage, and tobacco products. Eight saw a contraction including apparel, leather and allied products; textile mills; electrical equipment, appliances and components; and petroleum and coal products.
Dive Insight:
January marked the first month of expansion since July 2019, however, the manufacturing sector isn't out of the woods just yet.
"US manufacturing limped into 2020, with falling exports dampening output growth and causing a pull-back in hiring," Williamson said. "The survey data are consistent with factory production falling moderately, meaning the manufacturing sector looks set to act as a drag on the overall economy once again in the first quarter."
Despite seeing the first signs of recovery after being battered by international trade tensions in 2019, a number of companies ISM surveyed expressed wariness about making investments in capital projects and hiring as the future of U.S-China relations remains uncertain.
While the phase one deal between the two countries was a sign of some progress, it is looking more unlikely that China will be able to fulfill its purchasing obligations (namely soybeans and other agricultural products) due to the coronavirus outbreak. This could potentially impact the success of future phase two negotiations wherein the removal of certain tariffs is expected to be on the table.
Few manufacturers are making the choice to return operations to the U.S., and are some leaving China to invest in countries throughout Asia and in Mexico. This could mean January's growth numbers will be short-lived, according to some experts.
"I think the slight uptick is perhaps an anomaly," Rosemary Coates, executive director of the Reshoring Institute, told Supply Chain Dive in an email. "The economy is doing well, so I would expect manufacturing to benefit from that. But we really are not seeing much manufacturing return to the US or expansion of current US manufacturing. It certainly is not what we expected given the tax cuts and the lifting of so many environmental restrictions."
Lisa Anderson, a consultant with the LMA Consulting Group, told Supply Chain Dive that while the industry is in flux, the January spike could be a sign of cost-saving technologies and manufacturing trends taking hold.
"The expectations of Amazon-like service, the increase in tariffs, and mounting concerns to conserve cash [are] prompting manufacturing executives to reevaluate their supply chain," she wrote via email. "As manufacturers realize what can be achieved with technology such as AI, IoT, robotics, and additive manufacturing, they are sourcing manufacturing closer to the customer to create a customer experience advantage (rapid customization and delivery) with a lower cost base."
