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Industrial & Medical Technology

Manufacturing Momentum Hits a Cold Snap

07 February 2014

If the supply chain ever had any doubts about the effects of weather, this month's Institute for Supply Management (ISM) report can put those doubts to rest. The U.S. manufacturing industry's forward momentum slowed considerably in January largely because of cold weather. Ice and snow shut down the nation's highways and airports several times in January, leaving manufacturers unable to move their goods.

Manufacturing is still expanding, according to ISM's Manufacturing Business Report, and maintained growth for the eighth consecutive month. ISM's leading index, the PMI, declined 5.2 percentage points from December's reading of 56.5 to 51.3 percent. A PMI reading above 50 percent indicates that the manufacturing economy is expanding; below 50 percent indicates that it is contracting.

Manufacturers' inability to ship their products had a negative impact on the index, according to Bradley J. Holcomb, chair of ISM's Business Survey Committee. New orders dropped dramatically: January's reading of 51.2 percent was down 13.2 percentage points from December.

"Based on comments from many of our panelists, that [index] was impacted by the unusually cold weather we had in January," said Holcomb. This lack of mobility also extended into new orders, he said.

The chain reaction was echoed throughout the rest of the report: Raw materials shipments to factories were down 3 percentage points to 44 percent, and January's production index decreased 6.9 percentage points to 54.8 percent. At the same time, the Customers' Inventories Index—which at 44 percent dropped 3.5 points from December—indicates there is room for manufacturers to start shipping products again.

Eleven of the 18 industries tracked by ISM reported growth in January. In descending order, they were plastics and rubber products; primary metals; textile mills; wood products; printing and related support activities; fabricated metal products; electrical equipment, appliances and components; transportation equipment; machinery; furniture and related products; and food, beverage and tobacco products. The seven industries reporting contraction in January—listed in descending order—were nonmetallic mineral products; petroleum and coal products; apparel, leather and allied products; miscellaneous manufacturing; chemical products; paper products; and computer and electronic products.

Comments from the ISM panel were generally positive in spite of January's cold snap: "Some of our sectors reported they were working 24-hour shifts; the government aerospace business is brisk and there were slight improvements in defense," Holcomb said. Prices also increased in January by 7 percentage points, which is fairly typical, he added. "Every year, suppliers float their price hikes in January so they can lock customer contracts in for the long term."

January's data was reported against adjusted information for 2013. At the end of every year, ISM strips seasonality out of its numbers and revises its report. Data for 2013 was not significantly impacted by the adjustment, Holcomb said.

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