The industrial sector suffered most in recent years as inflation reached a 40-year high and the Federal Reserve tightened monetary policy. Higher interest rates hindered demand and manufacturing shrank.
Despite the ongoing crisis, industrial activity has slowly rebounded for two months due to falling inflation and pricing pressures. On February 1, the Institute for Supply Management (“ISM”) stated that January's manufacturing PMI was 49.1, above the consensus expectation of 47.6 and up from December's downwardly revised 47.1.
A rating below 50 suggests a contraction, but the January reading shows the manufacturing sector is slowly expanding.
The indicator for new orders climbed to 52.5 in January, up for the second month in a row and above December's 47. The Production Index, which fell 10 of 14 months, climbed 0.5% to 50.4 in January from December's seasonally adjusted 49.9.
As inflation fell considerably over the last year, the Federal Reserve kept its benchmark policy rate constant at 5.25-5.50% in January for the fourth time.
As inflation falls, demand rises, boosting manufacturing. The Federal Reserve also signaled that it will soon stop raising interest rates and begin cutting them.
Although Federal Reserve Chairman Jerome Powell suggested it's doubtful the central bank would lower rates in March, markets are pricing in at least three 25-basis-point cuts in 2024. Lower interest rates will enhance demand for U.S.-made goods and manufacturing activities, benefiting the economy.
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