Employment is up, new orders are down, inventories are flailing, and imports/exports are all over the place. Just as manufacturing lost momentum in the second half of 2006, it is starting 2007 in a less-than-robust fashion, according to the Institute for Supply Management’s latest numbers. Here comes the math.

Economic activity in the manufacturing sector contracted in January following a one-month expansion, while the overall economy grew for the 63rd consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business, issued today by the Institute for Supply Management.

The overall U.S. economy is expected to experience some moderation in the first half of 2007, and according to the Manufacturers Alliance/MAPI Survey on the Business Outlook, manufacturing production will likely play its part in a slowdown.

After a slight rebound in December, the manufacturing sector failed to grow in January, says ISM. “The signals are clear that there is relatively little change taking place in the sector.”

The big-ticket consumer items, such as housing and automobiles, are those weighing down the industrial sectors, according to the Manufacturers Alliance/MAPI. Sorting out the excesses in the downstream housing and auto-related products is taking time, but it appears that the strength in consumer income growth and the positive capital spending cycle will save the day.

Here are some highlights from the latest data:

Top-performing Industries
The seven industries reporting growth in January (listed in order): apparel, leather and allied products; petroleum and coal products; plastics and rubber products; miscellaneous manufacturing; furniture and related products; transportation equipment; and paper products.

New Orders
ISM’s New Orders Index registered 1.6 percentage points lower in January than in the seasonally adjusted December report.

The Manufacturers Alliance/MAPI Survey reports a notable increase in December. “The 3.1 percent increase in new orders for durable goods and 2.4 percent increase in non-defense capital goods excluding aircraft in December is a positive sign that the manufacturing slump is a pause, not a recession, and is starting to turning around,” says Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI.

Production
ISM’s Production Index registered 2.8 percentage points lower in January than the seasonally adjusted 52.4 percent reported in December. Manufacturers’ production is contracting after a one-month expansion in December.

Employment
ISM’s Employment Index registered 49.5 percent in January, an increase of 0.1 percentage point when compared to December’s seasonally adjusted reading of 49.4 percent. This is the third consecutive month that manufacturing employment has contracted. An Employment Index above 49.2 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The six industries reporting employment growth during January: apparel, leather and allied products; miscellaneous manufacturing; paper products; plastics and rubber products; chemical products; and furniture and related products.

Inventories
Manufacturers’ inventories contracted at a significantly faster rate in January, with an 8.6 percentage point decrease when compared to December’s seasonally adjusted reading, according to ISM’s Inventories Index:

This is the largest point decrease in the Inventories Index since August 1984 when the index dropped from 57.8 percent to 49.1 percent, a decrease of 8.7 percentage points. An Inventories Index greater than 42.4 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis’ (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Prices
Last month, the ISM Prices Index indicated that manufacturers are paying higher prices on average when compared with December. While 24 percent of respondents reported paying higher prices and 18 percent reported paying lower prices, 58 percent of supply executives reported paying the same prices as the preceding month.

In January, the following 10 industries reported paying higher prices: textile mills; miscellaneous manufacturing; transportation equipment; paper products; nonmetallic mineral products; primary metals; computer and electronic products; food, beverage and tobacco products; chemical products; and machinery.

New Import/Export Orders
Imports of materials by manufacturers grew during January as the Imports Index registered 1 percentage point lower than in December. This is the 61st consecutive month of growth in import orders.

ISM’s New Export Orders Index registered a 1.8 percent decrease from December to January — the 50th consecutive month of growth in export orders. Indeed, the U.S. is in the midst of an export boom, with foreign sales chipping away at the country’s enormous trade deficit while providing a modest cushion against the declining housing market.

In the first 11 months of 2006, U.S. exports reached $1.31 trillion, a 13.1 percent jump over the corresponding period in 2005, according to the Commerce Department. That was an improvement over the 10.7 percent gain of the year before.

To be sure, however, the export surge is nowhere close to balancing the nation’s trade.

For the first 11 months of 2006, the U.S. imported $2 trillion worth of goods and services, or about 50 percent more than the nation exported, resulting in a trade deficit of about $700 billion. Statistics for all of 2006, to be released next month, are expected to show that the U.S. shattered the all-time-record trade deficit of $717 billion, set in 2005, notes recent The China Post’s coverage of U.S. business.

Still, recent monthly figures show exports growing nearly three times as fast as imports. Economists say exports are being propelled by a falling dollar, which has lost nearly 10 percent of its value compared with other currencies since 2002, making U.S. goods cheaper on world markets.

Domestic U.S. manufacturing lost momentum in the second half of 2006 and, according to these numbers and forecasts, clearly is starting 2007 in a less-than-robust fashion. However, while business is generally slower for some, others expect a strong year in 2007 and even see positive trends in the past year.

In December, the U.S. Department of Labor’s Bureau of Labor Statistics said that manufacturing productivity increased 6.7 percent in 2006′s third quarter, as output increased 5.1 percent and hours of all persons decreased 1.6 percent (seasonally adjusted annual rates). This was the largest quarterly productivity gain since the third quarter of 2003, when manufacturing output per hour grew 8.6 percent. In durable goods industries, productivity increased 9.0 percent in the third quarter of 2006, as an increase of 5.9 percent in output combined with a decrease of 2.9 percent in hours.

Globally, despite ending the year on a subdued note, the performance of the manufacturing economy for 2006 as a whole was relatively robust. Rates of growth for production and new orders were (on average) higher in 2006 than during 2005, according to the JPMorgan Global Manufacturing Purchasing Managers’ Index.