The ISM Manufacturing Index continued to moderate in January, as its third consecutive decline brought it down to a 16-month low. Even so, this leading manufacturing gauge is still soundly in expansion territory (readings above 50).
Ongoing supply-demand imbalances continue to be a major challenge for manufacturers, as shown by the persistently extreme readings in the Prices Paid and Customer Inventories components (bottom 2 graphs below). While Price Paid moved up to its highest level since last August, the improving trend in Customer Inventories indicates that imbalances are gradually being resolved. As such, this report suggests –and we agree– that the nature of future inflation may depend on the persistence of wage growth in the year ahead.
