The Institute of Applied Research’s Dr. Barbara Sirotnik and Lori Aldana report that “this month’s Inland Empire Purchasing Managers’ Index (PMI) registered 50.4, up from the previous month’s reading of 47.0.
Establishing a new trend of growth or decrease takes three consecutive months with numbers above 50. The manufacturing sector won’t be considered back in growth mode for two more months because this is the first month that the baseline of 50 has been exceeded.
Throwback to December: Decline in IE’s Manufacturing Sector
The Inland Empire Purchasing Managers’ Index (PMI) fell from 49.6 last month to 47.0 this month. For a new trend to emerge, three consecutive months with numbers below 50 are required. Given that December’s statistic represents a new trend of decline in the manufacturing sector in the Inland Empire.
Read Here: PMI Reveals a New Decline in Inland Empire’s Manufacturing Sector
Analysis of PMI Components
One of the two major PMI components, the Production Index, increased from 46.3 to 48.0 this month from last month. There is no reason for alarm that it has remained below the reference level of 50. Since the publication of this report in 1993, a pattern of December/January values that register below 50 has been observed.
The New Orders Index, another important PMI component, increased from 46.3 last month to 48.0 this month. The index has remained below the starting point of 50 for the fourth consecutive month.
The Employment Index improved from 48.1 last month to 56.0 this month. Many businesses reported boosting employment this month in preparation for a busy year by hiring permanent roles (as opposed to temps).
The Inland Empire’s Commodity Price Index jumped from 51.9 last month to 60.0 this month. One major contributing factor is the rising annual cost of gas over the past month.
“Power and fuel prices need to return to affordability,” said one panelist.
From 53.7 last month to 50.0 this month, the index dropped. A delivery speed index of 50.0 indicates no change from the previous month in the rate of deliveries.
The Inventory level (measured in units rather than dollars) for raw materials, MRO (Maintenance, Repair, Operating), intermediates, etc., was 50.0, a considerable rise from the 40.7 level recorded the previous month.
As a result of “excellent” sales and the ability to get rid of inventory, 29.6% of panelists last month reported that the amount of completed goods inventory had fallen from the previous month. Only 12.0% of panelists this month reported such an increase.
The majority of respondents (64.0%, up from 55.6% last month) stated that their inventory level of finished goods is the same as it was the month before, indicating that the production of finished goods is “keeping pace” with sales. A higher percentage of 24.0% (up from 14.8% last month) said that the amount of finished goods has grown.
Panelists’ Outlook on the Economy
The panelists have continued to express a “less than favorable outlook” for the nation’s economy in this first month of the new year. Only 8% (up from 4% last month) said they anticipated a stronger Inland Empire economy in the upcoming quarter.
Less than half (46%) predict that the local economy will weaken in the upcoming quarter, and the remaining 46% expect that it will be “the same” as it has been (i.e., still striving to reach pre-pandemic levels).
To wrap up, the increase in the employment index and the PMI’s return to growth mode after remaining below 50 for three consecutive months are both positive developments. The manufacturing sector in the Inland Empire is back in growth mode if input from panelists results in two more months of numbers above 50.
But, it is now impossible to forecast this likelihood because some logistics experts believe supply chain disruptions will persist in 2023.