A reading on U.S. manufacturing activity unexpectedly increased in the month of January but continues to indicate contraction, according to a report released by the Institute for Supply Management on Thursday.
The ISM said its manufacturing PMI rose to 49.1 in January from a downwardly revised 47.1 in December. While a reading below 50 still indicates contraction, economists had expected the index to edge down to 47.0 from the 47.4 originally reported for the previous month.
With the unexpected increase, the manufacturing PMI reached its highest reading since hitting 50.0 in October 2022.
The unexpected uptick by the headline index partly reflected a notable turnaround by new orders, as the new orders index jumped to 52.5 in January from 47.0 in December.
The production index also inched up to 50.4 in January from 49.9 in December, moving back into expansion territory after two months of contraction.
Meanwhile, the ISM said employment index edged down to 47.1 in January from 47.5 in December, indicating a faster rate of contraction in employment in the manufacturing sector.
The report also showed a significant turnaround by prices, with the prices index surging to 52.9 in January from 45.2 in December.
With the sharp increase, the prices index suggests raw materials prices rose in January after eight consecutive months of decreases.
“The ISM Manufacturing survey for January gave no clear suggestion the economy slowed down to start 2024,” said FHN Financial Macro Strategist Will Compernolle.
He added, “An increase in the prices paid component presents potential upside risks to goods inflation as global supply chains get interrupted from violence near the Red Sea.”
Next Monday, the ISM is scheduled to release a separate report on U.S. service sector activity in the month of January.
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