Update: What does the ISM mean for the market? In an earlier post, we pointed out that the market tends to bottom at the same time as the ISM. The ISM ticked slightly higher this month, and while one month does not make a trend, this could be the beginning of the bottoming process.

The US manufacturing sector contracted significantly in the month of January, but the nation’s manufacturers cut back on production at a slower pace than expected, according to the Institute of Supply Management’s manufacturing index. The ISM tracks the breadth of growth across firms, asking purchasing managers if business is better this month than last. The PMI came in at 35.6%, up from 32.9% in December, its lowest level since 1982. Economists were surprised by the number, as forecasts had the number closer to 32.6%. Readings above 50% indicate growth, and anything below, contraction.

The Last 12 Months

Month PMI   Month PMI
Jan 2009 35.6   Jul 2008 49.5
Dec 2008 32.9   Jun 2008 49.5
Nov 2008 36.6   May 2008 49.3
Oct 2008 38.7   Apr 2008 48.6
Sep 2008 43.4   Mar 2008 49.0
Aug 2008 49.3   Feb 2008 48.8
Average for 12 months — 44.3
High — 49.5
Low — 32.9

The January new-orders index recovered to 33.2% from 23.1% in December, the ISM’s data showed. The production index rose to 32.1% from 26.3%. Both are off multi-decade lows.

The employment index came in flat to stand at 29.9%. Inventories (37.5%) and customers’ inventories (55.5%)were both lower (good news!), as businesses are trying to de-leverage and clear out excess product.

Via MarketWatch:

Norbert Ore, chair of the ISM factory survey committee, said the report may indicate the bottom of the factory downturn.

The January data “simply says we’re finding ourselves somewhere near the bottom,” Ore said.

Today’s report was the first rise in the ISM since June 2008.

See Full Report.

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