Institute For Supply Management Manufacturing Sample Sinks

Employment sank the ISM index in January which could muster no better than a 48.2 for what, following annual revisions to 2015, is the fourth sub-50 reading in a row. This is by far the worst run for this closely watched indicator since the Great Recession days of 2009.

Employment fell a very steep 2.1 points to 45.9 to signal significant contraction for manufacturing payrolls in Friday's employment report, which however would not be much of a surprise given the sector's prior payroll contraction. This is the third sub-50 reading for employment of the last four months and the lowest reading since, once again, 2009.

There is good news in the report and that's a snapback for new orders, to 51.5 for only the second plus 50 reading of the last five months and which points to overall improvement in the coming reports. But backlog orders, at only 43.0, remain in deep contraction, and what strength there is in orders isn't coming from exports which are in contraction for the seventh of the last eight months. Manufacturers have been working down backlogs to keep production up, which came in at 50.2 to signal fractional monthly growth. Inventories remain steady and low but the sample still say they are too high, sentiment that points to lack of confidence in the business outlook.

Confirming the weakness is breadth among industries with 10 reporting composite contraction against eight reporting monthly growth. If it wasn't for strength in new orders, January's data would be almost entirely negative. This report is a downbeat opening to 2016 which follows a definitively downbeat year for the factory sector in 2015.

Recent History Of This Indicator
The ISM manufacturing index skidded into the sub-50 zone late last year and isn't expected to pop back over in January with Econoday forecasters calling for 48.3. December's 48.2 and November's 48.6 were two of the three weakest months of the recovery for this indicator and none of the 16 forecasters for this report see anything close to 50 in January with the high estimate at only 49.3. New orders have been in contraction with backlog orders in deep contraction. And ISM's sample has been describing inventories as too high in what points to a lack of confidence in the business outlook. This report is closely watched and a third straight sub-50 reading would definitely raise talk of another unfavorable year for the factory sector.