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US manufacturing activity contracts for third month: survey

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US manufacturing activity contracted for a third month but companies are positive about the second half of the year./AFP
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Feb 02, 2023 - 01:30 AM

WASHINGTON — Activity in the US manufacturing sector shrank for a third straight month in January, hovering at the lowest levels since May 2020 as new orders and production slumped, according to survey data released Wednesday.

The gloomy figure comes as demand softens on the back of the central bank’s rapid interest rate hikes.

The Institute for Supply Management’s (ISM) manufacturing index slipped one percentage point to 47.4 percent in January, from 48.4 percent in December.

This was a touch below analyst expectations and also lower than the 50 percent threshold indicating growth in the sector.

“The January composite index reading reflects companies slowing outputs to better match demand in the first half of 2023 and prepare for growth in the second half of the year,” said ISM manufacturing survey chair Timothy Fiore in a statement.

In recent months, the manufacturing Purchasing Managers Index has been at its lowest levels since the pandemic recovery began.

The latest reading “is not encouraging and signals a poor start to the year for factories,” said Oren Klachkin of Oxford Economics.

“We anticipate more pain over the coming months as tight monetary policy and the past tightening in financial conditions drag down manufacturing activity,” he added.

In January, the new orders index and production index remained in contraction, both retreating from December’s readings, as demand eased, according to the ISM report.

But companies “are indicating that they are not going to substantially reduce head counts as they are positive about the second half of the year,” Fiore added.

Of the six biggest manufacturing industries, only one — transportation equipment — registered growth in January, said ISM.

“Business is still strong, but we have begun to see softening in some pricing, and lead times seem to be improving,” said a respondent in the computer and electronic products sector.

Another respondent in the chemical products sector added that “there have been a lot fewer supply disruptions so far this year.”

US central bankers are due to conclude a two-day policy meeting on Wednesday, at the end of which analysts expect a further but smaller interest rate hike.

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