ISM Report on Business Looks Good for Steel Mills
The Institute for Supply Management (ISM) released their report on the manufacturing sector of the U.S. economy this morning. Overall, manufacturing activity is being reported as having expanded for the sixth consecutive month while the overall economy grew for the ninth consecutive month. This is considered good news for the U.S. flat rolled steel industry and steel prices
The ISM press release contained the following information:
“Manufacturing growth accelerated in January as the PMI registered 58.4 percent, an increase of 3.5 percentage points when compared to December's seasonally adjusted reading of 54.9 percent. This is the sixth consecutive month of growth in the manufacturing sector, and the highest reading for the Index since August 2004 when it registered 58.5 percent. Prior to this recent growth trend, the PMI declined for 13 consecutive months. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
A PMI in excess of 42 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the ninth consecutive month in the overall economy, as well as expansion in the manufacturing sector for the sixth consecutive month. Ore stated, "The past relationship between the PMI and the overall economy indicates that the PMI for January (58.4 percent) corresponds to a 5.5 percent increase in real gross domestic product (GDP) on an annual basis."’
“The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. ‘The manufacturing sector grew for the sixth consecutive month in January as the PMI rose to 58.4 percent, its highest reading since August 2004 when it registered 58.5 percent. This month's report provides significant assurance that the manufacturing sector is in recovery. Both the New Orders and Production Indexes are above 60 percent, indicating strong current and future performance for manufacturing. This month, 13 of 18 industries reported growth, up from nine industries last month, and this is a good indication that the impact of the recovery is expanding.’"
Points of interest for those of us in the steel business: New orders are growing, production improved by 6.5% according to the ISM survey, suppliers deliveries are slowing, inventories both manufacturer and customer are contracting. However, the ISM report had the following to say about customer inventory levels:
“The ISM Customers' Inventories Index registered 32 percent in January, 3 percentage points lower than in December when the index registered 35 percent, and the lowest reading in the history of the index. The index indicates that respondents believe their customers' inventories are too low at this time. This is the 10th consecutive month the Customers' Inventories Index has been below 50 percent.”
Steel Market Update will have more about the impact of the ISM Report on Business in our newsletter which will be published on Tuesday evening. We are conducting our own steel Market Survey at this time and the results will be published Tuesday evening and Thursday evening of this week.
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