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Economy in Brief

ISM Index Recovered, New Orders Surged
by Tom Moeller March 1, 2006

The Institute of Supply Management (ISM) reported that the February Composite Index of activity in the manufacturing sector recovered 1.9 points to 56.7, the first m/m increase since October. Consensus expectations had been for a lesser increase to 55.2.

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.

Each of the index's five components rose last month except vendor deliveries which, at 52.2, is off sharply from the 2004 high of 68.5. The new orders index rose to the highest level (61.9) in more than a year and the employment index recovered to the highest level (55.0) since November. 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.

Production recovered most of the drop in January but it was only the first increase in the last five months and the inventory index rose sharply to nearly a one year high.

The price index slipped 2.5 points to its lowest level since last summer. 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 Feb Jan Feb '05 2005 2004 2003
Composite Index 56.7 54.8 55.6 55.5 60.5 53.3
  New Orders Index 61.9 58.0 56.4 57.4 63.5 57.9
Prices Paid Index (NSA) 62.5 65.0 65.5 66.4 79.8 59.6
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