January's Purchasing Manager's Index (definition | chart | source) , or PMI, hit its lowest level since March 1991, when the U.S. was last in a recession. The index hit 41.2 in January, well below the 43.6 expected by economists and also below December's reading of 43.7.

Any reading on the PMI below 42.7 signals that the overall economy is contracting.

Though it is not as important part of the economy as it once was, manufacturing is the sector that has suffered most drastically in recent months. And some credit the last PMI report for the Federal Reserve's surprise intermeeting rate cut early last month.

The data also indicated that new orders for manufactured goods fell as inventories rose. Manufacturing prices also rose. The manufacturing new orders index fell to 37.8 from a revised 42.5 in December; the manufacturing inventories index jumped to 42.2 in January vs. December's revised 40.7; and the manufacturing prices index hiked up to 65.7 from 62.2 in December.

The PMI is a manufacturing index based on a survey of purchasing executives at roughly 300 industrial companies, and signals expansion when above 50 and contraction when below.

The components of the PMI include new orders, production, employment, supplier deliveries, inventories, prices, new export orders, imports and backlog of orders. The employment index is used to help predict manufacturing employment.