Purchasing index in US rises for first time since summer

US manufacturing expanded in January for the first time in six months, but gains may be fleeting as Boeing's temporary halt in production of the 737 MAX jetliner and the worldwide spread of the coronavirus create drags on the economy, the Institute of Supply Management (ISM) said Monday.

The institute, a private, nonprofit research and educational organization based in Arizona with about 50,000 members in 100 countries, said its Purchasing Managers' Index (PMI) rose to 50.9 in January — the first increase since July.

Any PMI number above 50 indicates an expansion from the previous month, but the 3.1-point jump from December is the largest monthly advance since mid-2013 and may signal a new sense of optimism among US manufacturers.

However, Timothy Fiore, chairman of ISM, urged caution: February's demand remains unclear and the uptick, while encouraging, may not signal an extended expansion. Last year, US factories added the fewest jobs since 2016. The Labor Department's report Friday will offer the first look at manufacturing employment in 2020.

"Weakness in inputs for January questioned demand for expansion in February and whether we're at the beginning of a sustained Purchasing Managers Index expansion," said Fiore in a conference call with reporters.

In January, Boeing temporarily halted production of its top-selling plane, the 737 MAX, due to safety concerns following crashes in Indonesia and Ethiopia that killed a total of 346 passengers and crew. Boeing hasn't laid off workers, but the shutdown has forced some suppliers to furlough workers. There is no date certain for the plane's return to service.

Nevertheless, the Congressional Budget Office projects US gross domestic product growth of 2.2 percent in 2020. The Commerce Department expects moderate but steady expansion. The Federal Reserve Bank cut interest rates by a quarter of a point three times in 2019 to boost the economy and held rates steady at its January meeting.

Despite a slowdown in manufacturing, the service sector and consumer spending have boosted the overall US economy. The current expansion began in mid-2008 and became the longest on record in July 2019.

The ISM said new orders rose 4.4 percent in January from December while production increased 9.5 percent, employment rose 1.4 percent, backlog of orders rose 2.4 percent, exports rose 6 percent and prices rose 1.6 percent.

The increases suggest optimism generated by the Phase One trade deal between US and Chinese leaders and US President Donald Trump's signing of the US-Mexico-Canada trade pact.

The institute said the manufacturing sectors expanding in January included furniture, food, beverage, tobacco, computer and electronics, chemicals and fabricated metal products.

Sectors reporting contraction were printing, apparel, leather, electrical equipment, appliances, petroleum, coal, textile mills, transportation equipment, primary metals, and machinery, the ISM reported.

A respondent to the ISM survey commented, "Tariffs are still a concern and are believed to be a factor in short supply and higher prices of electronic parts. Our profit margin has been somewhat negatively affected by high tariffs, particularly on electronic parts from China."