·
The Institute for Supply Management 's Composite Index of Manufacturing
Sector Activity fell very slightly month-to-month during July to a
break-even 50 from 50.2 in June. Still, the index is up from the monthly
lows near 48 this past winter. Consensus expectations had been for more
of a decline to 49.1 in July.
· Despite the very recent improvement, the index's average level so far this year of 49.4 was its lowest since early-2003.
· During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three-month growth in factory sector industrial production.
· It is appropriate to correlate the ISM index level with factory sector growth because the ISM index is a diffusion index. It measures growth by using all of the positive changes in activity added to one half of the zero change in activity measures.
· The employment index improved
markedly last month to a level of 51.9. That was the first reading above
the break-even level of 50 since October. During the last twenty years
there has been a 67% correlation between the level of the ISM employment
index and the three-month growth in factory sector employment.
· The new orders index, however, offset that rise with a decline to 45.0 which was its lowest level since the recession of 2001. The new export orders sub-series declined sharply to 54.0 which was its lowest reading since last December. During the last ten years there has been a 53% correlation between the index and the q/q change in real exports of goods in the GDP accounts.
· The production index rose modestly to 52.9 but the inventories series fell sharply to 45.0.
· Prices paid backed off a bit to a still high index level of 88.5. During the last twenty years there has been a 79% correlation between the price index and the three-month change in the PPI for intermediate goods.