The release of the results from the Institute for Supply Management’s monthly manufacturing purchasing managers index survey revealed a sharp slowdown in the pace of growth in American manufacturing in January.
ISM attributes the weakness to weather, citing respondents to the survey in its release.
“Poor weather impacted outbound and inbound shipments,” said a respondent from the fabricated metal products industry.
“Good finish to 2013, but slow start to 2014, mostly attributed to weather,” added a respondent from a petroleum and coal products manufacturer.
“We have experienced many late deliveries during the past week due to the weather shutting down truck lines,” said a manufacturer of plastics and rubber products.
Despite this explanation for the manufacturing slowdown, markets are taking the bad numbers seriously — stocks are tumbling and yields are plummeting as Treasuries surge in the wake of the ISM release.
Record-low temperatures in December and January have also been cited by many economists as the primary driver of disappointment in a string of weaker-than-expected housing-related and labour-market economic data releases in recent weeks, including the most recent release of the widely-followed monthly jobs report prepared by the U.S. Bureau of Labour Statistics, which pointed to a sharp slowdown in hiring in December.
However, since temperatures in December and January were known in advance of these releases, one would expect that cold weather would already be factored into forecasts — so disappointment relative to expectations due to weather isn’t such a satisfying explanation for the latest turn in the economic data.
“This ISM manufacturing report offers a sobering glimpse on the weakening in growth month in recent months, confirming the souring tone in other important economic indicators,” says Millan Mulraine, deputy head of U.S. research and strategy at TD Securities.
“Nevertheless, to the extent that much of this weakening in growth momentum has been due to the cold weather conditions nationally, we expect this slowdown to prove temporary and look for a meaningful rebound in activity in the coming months as the weather effects dissipate.”
The next big release that should give us a clue of how much weather is responsible for recent weakness is the January jobs report, due out from the BLS on Friday morning.
“Although the month of January as a whole was quite cold, the payroll survey week was actually somewhat warmer than normal, and we expect no significant weather impact on the seasonally adjusted level of payrolls this month,” says Goldman Sachs chief economist Jan Hatzius.
“Given our estimate that the cold weather in the December survey week depressed the seasonally adjusted level of payrolls last month by about 50,000, this implies a positive weather impact on the payroll change of about 50,000.”