Manufacturing

U.S. manufacturing activity slowed last month, dragged down by a drawdown of inventories and poor weather, the Institute for Supply Management said Monday. Above, workers assemble ovens at an appliance factory in Memphis, Tenn., last month. (Adrian Sainz/Associated Press)

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U.S. manufacturing slowed in January as new orders and inventories plunged, according to data released Monday by the Institute for Supply Management.

The group's purchasing managers index dropped to 51.3 last month, down more than 5 percentage points from a 56.5 reading in December. It's the lowest index reading since May 2013. 

Still, a reading above 50 indicates expansion. 

"A number of comments from the panel cite adverse weather conditions as a factor negatively impacting their businesses in January," said Bradley Holcomb, chair of the Institute for Supply Management's Manufacturing Business Survey Committee. "Others reflect optimism and increasing volumes in the early stages of 2014." 

The index for new orders saw the steepest plunge -- 13.2 percentage points -- last month, dropping to 51.2. That represents the largest decline in the last four years. 

Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note to clients said the January index was "an overdue, but oversized, correction."

It's "a shock, but we have argued for some time that the recent strength of the ISM is unsustainable," Shepherdson said. "China's PMI has been telling us for some time to expect weaker ISM readings, and the run of severe weather likely has hurt too."

U.S. stocks appeared to react to the disappointing January index for manufacturing. Economists had predicted the index reading would be 56, down slightly from the 56.5 reading in December. 

The Dow Jones Industrial Average was down nearly 196 points, or 1.25%, at 15,503.2 Monday. The S&P 500 fell 23.85 points, or 1.34%, to 1,758.74.The Nasdaq declined 60.1 points, or 1.46%, to 4,043.77.

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