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Economy in Brief

ISM Index Disappointing Again in June, but Orders Up
by Tom Moeller July 3, 2006

The June Composite Index of factory sector activity reported by the Institute of Supply Management (ISM) slipped to 53.8 from 54.4 the month prior. Consensus expectations had been for a slight increase to 55.0.

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.

A 4.2 point drop in the employment index to 48.7 dropped the reading below the break even level of 50 for the first time in over a year. During the last twenty years there has been a 66% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.

The production index also fell for the second consecutive month to its lowest (55.1) since early 2003 and the inventory index (46.9) fell for the fourth month this year.

New orders (57.9) improved for the first month in the last four and recovered most of the prior two months' decline. New export orders slipped modestly m/m and at 55.4 were down from the highs of the prior nine months. 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.

An index of order backlogs rose moderately to 54.0 following two months of sharp decline while the import index was unchanged at a still strong 56.5.

The price index slipped modestly following several m/m jumps earlier this year. 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.

The Puzzling Convergence in Foreign Exchange Volatility from the Federal Reserve Bank of St. Louis is available here.

ISM Manufacturing Survey June May June '05 2005 2004 2003
Composite Index 53.8 54.4 54.0 55.5 60.5 53.3
  New Orders Index 57.9 53.7 57.2 57.4 63.5 57.9
Prices Paid Index (NSA) 76.5 77.0 50.5 66.4 79.8 59.6
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