Economic activity in the US manufacturing sector contracted in January for the third consecutive month following a 28-month period of growth, according to the Institute for Supply Management’s Manufacturing ISM Report On Business, released today.

The Manufacturing PMI registered 47.4% in January, one percentage point lower than the seasonally adjusted 48.4% recorded in December 2022. January’s reading indicates a second month of contraction after a 30-month period of expansion. In addition, the Manufacturing PMI figure in January is the lowest since May 2020, when it registered a seasonally adjusted 43.5%.

“The US manufacturing sector again contracted, with the Manufacturing PMI at its lowest level since the coronavirus pandemic recovery began,” said Timothy R. Fiore, chair of the Institute for Supply Management Manufacturing Business Survey Committee. “With Business Survey Committee panelists reporting softening new order rates over the previous nine months, 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.”

The measure of employment registered 50.6% in January, 0.2 percentage points lower than the seasonally adjusted December reading of 50.8%.

Fiore noted that the index indicated employment expanded weakly for a second month after contracting for three months.

“Labor management sentiment reversed in the month, with a strong majority of panelists' companies attempting to hire compared to reducing their employment levels,” Fiori said. “Although layoffs are occurring, there is a 4-to-1 hiring-to-reduction ratio (2-to-1 in the previous four months) as companies make decisions to retain workforces to support projected second-half growth.”

He noted that turnover rates remained stable in January, while for those companies increasing their head counts, comments continued to support an improving hiring environment.

The Manufacturing PMI is based on data compiled from purchasing and supply executives across the US.