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First Cut: ISM Manufacturing Index shows concerns about a decline in the factory sector may have been premature

The ISM Manufacturing Index rose nearly 2 points to 56.6 in January after 54.3 in December. The increase was unexpected after the Fed District Bank surveys widely – but not universally – pointed to another month of softer readings. Comments from ISM respondents suggest that 2019 is off to a solid start, if at a somewhat less robust pace that dominated 2018.

The nice rebound in new orders (58.2 in January versus 51.3 in December) is particularly encouraging along with the pickup in production (60.5 versus 54.1). Employment was little changed (55.5 versus 56.0) consistent with continued tightness in the labor market at a time when skilled workers are in short supply. Delivery times narrowed (56.2 versus 59.0) but were still in line with moderate expansion for the factory sector. Inventories rose a bit (52.8 versus 51.2) although not enough to suggest that they were in need of a drawdown in the face of somewhat slower activity.

Prices paid continued to slide lower (49.6 in January versus 54.9 in December) as energy costs remained low.

Export orders tipped 1 point lower (51.8 versus 52.8) while remaining overall in line with the recent trends. Demand for exports is still positive even with slower global growth. Demand for imports was somewhat higher (53.8 versus 52.7) as activity picked up again in January.

Concerns about loss of momentum for the factory sector may have been a bit overblown after the dip in December. However, the tone for early 2019 is one of moderation.

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