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Economy in Brief

ISM Index Off Unexpectedly, Pricing Pressure Up
by Tom Moeller April 3, 2006

The March Composite Index of activity in the factory sector fell to 55.2. The Institute of Supply Management (ISM) reported that most of the prior month's increase was reversed and that the 1Q average level was the lowest since the second quarter of last year. Consensus expectations had been for an increase to 57.5 last month.

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.

The new orders index reversed nearly all of the sharp improvement during February and dropped back into the range of the last nine months. Export orders slipped m/m although the 1Q index was at its highest level in nearly two years.

The employment index also fell sharply to its lowest level since last 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. Production was roughly stable m/m. The inventory index slipped but the quarterly level sustained its improved 4Q level. The supplier deliveries index rose moderately after a sharp decline during February.

The price index increased 4.0 points to its highest level since November. The Institute reported that the following commodities were up in price; aluminum, aluminum extrusions, aluminum products, carbon black, copper, copper products, corrugated containers, electronic components, flour, freight, natural rubber, paper, particle board, stainless steel, steel, hot rolled steel and sugar but that there were no commodities in short supply. 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.

Are We Engineering Ourselves Out of Manufacturing Jobs? from the Federal Reserve Bank of Cleveland can be found here.

ISM Manufacturing Survey Mar Feb Mar '05 2005 2004 2003
Composite Index 55.2 56.7 55.3 55.5 60.5 53.3
  New Orders Index 58.4 61.9 57.2 57.4 63.5 57.9
Prices Paid Index (NSA) 66.5 62.5 73.0 66.4 79.8 59.6
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