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Economy in Brief

ISM Index Decline Reflected Broad Component Weakness
by Tom Moeller June 1, 2006

The Institute of Supply Management (ISM) reported that the May Composite Index of factory sector activity reversed more than all of the prior month's gain and fell to 54.4. Consensus expectations had been for a more moderate decline to 56.0.

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.

New orders fell for the fourth month of 2006 to the lowest level (53.7) in a year. New export orders, however, recovered about half of an April decline and rose to 55.7. During the last nineteen years there has been a 68% correlation between the level of the ISM export index and the y/y change in real exports of goods.

A 3.2 point decline in the production index to 57.2 also reversed all of the prior month's sharp gain while employment (52.9) fell for the third month this year. 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 inventory index fell as well to 48.0 and the supplier deliveries index eased to 57.6 from 57.7.

The price index rose 5.5 points to the highest level since October. During the last twenty years there has been a 91% correlation between the price index and the three month change in the PPI for intermediate goods less food & energy.

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

ISM Manufacturing Survey May April May '05 2005 2004 2003
Composite Index 54.4 57.3 51.8 55.5 60.5 53.3
  New Orders Index 53.7 57.6 51.9 57.4 63.5 57.9
Prices Paid Index (NSA) 77.0 71.5 58.0 66.4 79.8 59.6
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