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Economy in Brief

ISM Index Eased
by Tom Moeller February 1, 2006

For January, the Institute of Supply Management (ISM) reported that the Composite Index of activity in the manufacturing sector eased to 54.8 from an upwardly revised level of 55.6 in December. It was the third consecutive monthly decline and left the index down sharply from the monthly peaks during 2003 & 2004 near 63. Consensus expectations for 55.4.

During the last twenty years there has been a 68% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.

Four of the index's five components fell last month led by a 2.3 point drop in employment to the lowest level since June. 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 fell 1.1 points and, at 58.0, is well below December 2003 peak of 71.6. Production fell 1.2 points to 56.6 and the inventory index slipped 0.8 points to 46.5, down sharply from the peak last March of 53.7. Only the supplier deliveries index rose in January to 55.3 but it remained down sharply from October's level of 60.8.

Prices continued to rise. A two point increase in the index to 65.0 nevertheless left the figure down from the recent peak of 84.0 in October. During the last twenty years there has been a 77% correlation between the price index and the three month change in the PPI for intermediate goods.

ISM Manufacturing Survey Jan Dec Jan '05 2005 2004 2003
Composite Index 54.8 55.6 56.3 55.5 60.5 53.3
  New Orders Index 58.0 59.1 57.3 57.4 63.5 57.9
Prices Paid Index (NSA) 65.0 63.0 69.0 66.4 79.8 59.6
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