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Economy in Brief

ISM Composite Index Fell, Price Index Below 50
by Tom Moeller November 1, 2006

The Institute for Supply Management reported that last month's composite index of manufacturing sector activity fell to 51.2 from 52.9 during September. The decline was the fifth in the last six months and was to the lowest level since July 2003. Consensus expectations had been for stability at 53.0.

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.

The price index, which is not included in the composite, collapsed to 47.0. The reading was the first below 50 in over one year and reflected just 18% of respondents reporting higher prices, 58% with prices unchanged and 24% indicating lower prices.

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.

A lower new orders (52.1) and a lower production (51.9) component led the composite index down. In addition, the vendor performance measure fell to 50.2, indicating the quickest delivery speeds since July 2003. The inventories index rose to a low 49.2.

The new export orders index at 57.8 improved to its highest level January. 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 slightly.

Employment also improved, marginally, to a barely break-even 50.8. 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.

U.S. Maneuvers Through Choppy Waters from the Federal Reserve Bank of St. Louis is available here.

The Yield Curve as a Leading Indicator: Some Practical Issues from the Federal Reserve Bank of New York can be found here.

ISM Manufacturing Survey October September Oct. '05 2005 2004 2003
Composite Index 51.2 52.9 58.1 55.5 60.5 53.3
Prices Index (NSA) 47.0 61.0 84.0 66.4 79.8 59.6
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