Shows Manufacturing Continues to Fight an Uphill Battle

• Topline ISM Purchasing Managers’ Index composite fell to 57.6
• Commodity Prices bounced higher after a slide to end 2021
• Backlog of Orders index fell to 56.4, lowest since November 2020
• Employment Index was little changed for January 2022, remains slightly above an expansionary reading of 50 (54.5)

The ISM Purchasing Managers’ Index posted a fourth consecutive monthly decline in January 2022, falling to 57.6. A reading above 50 for this diffusion index indicates expansion across the manufacturing industry, however, demonstrating that businesses are continuing to push through challenging supply chain and resource conditions. The Employment, Imports & Exports, and Customer Inventories subindices joined Commodity Prices in advancing for the month, while components such as New Orders, Production, and Deliveries all showed slight easing but all remained above the expansionary threshold reading of 50.

The Backlog of Orders index -highlighting persistent supply chain constraints – fell to 56.4 for January 2022. This reading is down from May 2021’s peak of 70.6, and showed the sharpest drop (6.4 index points, from 62.8 in December 2021) of all subindices to start the new year. Supply Chain constraints remain broad-based, so any improvements indicated in the ISM survey should be considered welcome signs that manufacturers are at least not losing ground in this challenging environment.

Customer Inventories, as reported by the ISM Purchasing Managers’ Index for January 2022, rose to a reading of 33.0. This subindex is the only reading in the survey below the expansionary threshold of 50. Manufacturers’ customers, thus, continue to report that they are unable to keep their shelves stocked. This component of the survey has risen from a low of 25.0 in July 2021 (and 25.1 in November 2021), but is still well below the pre-pandemic levels nearer the 40-45 range. One implication of Customer Inventories’ struggle to regain their balance is that the ‘Change in Inventories’ component of gross domestic product (GDP) will make up a larger share of economic activity gains in the first half of 2022 than usual. The 2021Q4 GDP growth rate was bolstered significantly by an exceptional build in inventories for the quarter.

Commodity Prices increased sharply in January 2022, according to the ISM Purchasing Managers’ Index. This index component increased to 76.1 from a year-ending 68.2 in December 2021 – the lowest reading the subindex had seen in more than a year. Advancing commodity prices paid by manufacturers reinforces the notion that consumer price inflation remains a threat for the coming year. Higher prices paid by businesses for inputs will inevitably be passed on to consumers and will do so with some delay into the coming months. 

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