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Economy in Brief

ISM Composite & Price Indexes Down
by Tom Moeller October 2, 2006

The September composite index of manufacturing sector activity from the Institute for Supply Management fell to 52.9 from 54.5 during the prior month. The decline was the fourth in the last five months and left the index down five points from the year ago peak of 58.1 Consensus expectations had been for a more moderate decline m/m to 53.5.

During the last ten years there has been a 67% correlation between the level of the ISM index and three month growth in factory sector industrial production.

At 61.0 the price index, which is not included in the composite, dropped to its lowest level since last November. During the last ten years there has been an 89% correlation between the level of the price index and the three month change in the PPI for intermediate goods less food & energy.

The percentage of respondents reporting higher prices fell to its lowest level (36%) since February.

A lower employment component, which fell to 49.4 from a four month high of 54.0 in August, accounted for much of the m/m decline in the composite. During the last ten years there has been a 77% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.

The inventories index also fell sharply m/m while all of the other component series fell modestly with the exception of new orders which was unchanged m/m. The new orders index, however, at 54.2 is down sharply from the December 2003 high of 71.6.

The new export orders index fell modestly m/m to 55.3 and is down roughly three points from the recent high in January of 58.5. The series peak was in early 2004 near 60. During the last ten years there has been a 69% correlation between the level of the export order index and the q/q growth in goods exports from the GDP accounts. The imports index rose back to the middle of its range since early 2005.

Explaining Cyclical Movements in Employment: Creative Destruction or Changes in Utilization from the Board of Governors of the Federal Reserve System is available here.

Economic Revitalization Through the Arts: The Creative Economy from the Federal Reserve Bank of Boston can be found here.

ISM Manufacturing Survey September August Sept. '05 2005 2004 2003
Composite Index 52.9 54.5 58.0 55.5 60.5 53.3
Prices Index (NSA) 61.0 73.0 78.0 66.4 79.8 59.6
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