TEMPE, Ariz. (2/4/14)--The results of a monthly survey of manufacturing managers released Monday indicates that cold weather may have frozen economic growth in January.
The Institute for Supply Management manufacturing index dropped to 51.3 from 56.5 last month--a more pronounced deceleration than economists had predicted. Moody's said the index "came in weaker than we expected," while a survey of economists conducted by MarketWatch forecast a 0.5 point dip in the index (Economy.com Feb. 3, MarketWatch Feb. 3).
Analysts for both research firms noted that the index's poor performance may only be temporary due to an unusually cold and snowy January. Many executives polled directly attributed the slowdown to weather conditions, with one pointing out that it "impacted outbound and inbound shipments," according to MarketWatch.
MarketWatch also noted that January's cold snap may have chilled the labor market, with the ISM employment gauge having fallen 3.5 points to 52.3%. A poll of economists conducted by the company predicted that a Labor Department report will show Friday that employment increased in January by 195,000. But MarketWatch warned that the weather could lead to a report that doesn't match expectations.
The ISM survey showed that new orders declined to 51.2 from 64.4--the most dramatic one-month drop since 1980, with the lion's share of it occurring in materials and metals industries.
The inventory index also fell for the third consecutive month by 3 points to 44. The gap between new orders and inventories--a predictor of future manufacturing--dropped to a seven-month low of 7.2, down from 17.2 in December.
The export index dropped in January, a month in which it historically grows, according to Moody's. But analysts for the firm pointed out that a fall in imports means that trade could make a positive contribution to GDP growth in the first quarter.
Despite declines in almost all of the index's components--the lone exception being the prices paid index--analysts are optimistic that growth will expand at a faster pace soon. A three-month moving average of the measure finished last month at 55.2, above last year's average of 53.9. Measures greater than 50 also show the ISM survey indicating expansion. And Bradley Holcomb, the person in charge of the manufacturing index, pointed out, according to MarketWatch, that certain responses to the survey "reflect optimism and increasing volumes in the early stages of 2014."
To compile the index, the ISM surveys executives who order raw materials and other supplies for their companies. MarketWatch said that the gauge tends to mirror wider trends in the U.S. economy.