US January ISM manufacturing index rises slightly, tentative signs of rebound in index

The US January ISM manufacturing index rose a bit to 48.2 from 48 in December. The index continued to remain in contractionary territory for the third consecutive month. The manufacturing sector is expected to continue to struggle due to the US dollar's appreciation, impact of lower oil prices on investment in the energy sector and weak foreign demand.

However, the tentative sign from the Markit China PMI indicates that the ISM manufacturing index will not decline further. Moreover, a rise in the January ISM new orders index to 51.5 indicates a little positive forward-looking signal. Hence, the broadening of the gap between inventory indices and the new orders implies that the ISM headline index might rise slightly above 50 in the next couple of months. Meanwhile, the ISM manufacturing employment index dropped to 45.9, the weakest level since 2009.

The ongoing weakness in manufacturing impacts the US labor market, damaging the main support for housing and consumer spending. This continues to be the main risk factor for the nation's economic outlook and the fed funds rate.