The manufacturing industry continued to struggle in January, as two national indices reported contracting production levels for a third consecutive month.
The S&P Global US Manufacturing Purchasing Managers' Index posted 46.9 in January, while the Institute for Supply Management's Report on Business registered a PMI at 47.4%. A reading below 50.0 indicates a contraction in the industry.
The contraction was driven by a decrease in new orders, with companies continuing to work through their inventory backlogs. ISM's new orders index hit 42.4%, down 2.6 percentage points from the month before.
ISM's production index was also down as a result, falling from 48.6% in December to 48% in January.
S&P Global saw similar results, citing client hesitancy and the postponement of orders as consumer demand remains uncertain.
"The drop in orders also means that excess capacity is developing, which has in turn meant companies have scaled back their hiring and purchasing, and are also increasingly focusing on reducing their inventory levels," S&P Global Market Intelligence Chief Business Economist Chris Williamson said in a statement.
But employment growth was a brighter spot in ISM's index as one of the few readings in expansion territory at 50.6%. More companies are looking to retain workers during the first half of the year to prepare for growth later in the year, Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said on a media call Wednesday.
“The only reason why they would retain headcount is in preparation for something in the future," Fiore said on the call. "I think what happened is that companies decided, ‘Let's not them lay off, because it'll be hard to get them back, and we'll miss the upside during the second half of the year.’”
Two manufacturing industries reported growth in January – miscellaneous manufacturing and transportation equipment, according to the ISM report.
While the chemical industry did not report growth, Fiore highlighted its improving performance compared to recent months, which he said could be a sign of a return to wider expansion in the months to come.
"Almost all the other industry sectors need some form of chemicals in their product. So the demand has to aggregate around an industry sector like chemicals," he said. "It'll be the first to get increased orders from all the other 17 industry sectors."
The S&P Global report also saw some signs of positivity, with respondents strongly confident of an uptick in output for the coming 12 months. The degree of optimism hit an eight-month high, buoyed by supply chain stability, and rising demand and investments in new products and marketing, according to the report.