U.S. manufacturing index hits 80-month high

U.S. manufacturing activity in January reached its highest level in nearly seven years, perhaps the clearest sign yet that the recovery in U.S. industry is self-sustaining, the Institute for Supply Management (ISM) said today in releasing its monthly report on manufacturing.

The Purchasing Managers Index, or PMI, the most closely watched of the report's 14 indices, rose to 60.8 percent, the highest level since May 2004, when the PMI hit 61.4 percent. New orders reached 67.8 percent, representing the 19th consecutive month of growth. Of the 18 industries that participate in the survey, 14 reported growth in January.

At the same time, deliveries by suppliers to manufacturers slowed in January for the 20th straight month, indicating longer delivery lead times as suppliers cope with rising order volumes. In addition, the "prices" index jumped to 81.5 percent, an increase of nine percentage points over December and the highest reading since July '08.

"This is a very good report," Norbert J. Ore, chair of ISM's Manufacturing Business Survey Committee, told DC Velocity. Ore said the January data indicate a continuation of the momentum that began in 2010 and suggest that first-quarter activity may be stronger than most have projected.

However, Ore warned of a continuing acceleration in prices that could eventually derail the recovery. "The major concern now is pricing, as higher costs could slow growth," he said. The "prices" index registered above 50 percent for the 19th consecutive month. A reading above 50 percent indicates that component prices are trending higher.

Ore took issue with those who contend that the rebound in U.S. manufacturing is due to the large injection of government stimulus spending rather than stronger private-sector performance.

"This is a typical manufacturing recovery," he said. "I would give stimulus little credit for what manufacturers have achieved through productivity increases and better business practices."