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Economy in Brief

ISM Composite Index Recovered A Bit
by Tom Moeller January 3, 2007

The composite index of manufacturing activity from the Institute for Supply Management recovered in December to 51.4 from 49.5 the prior month. Consensus expectations had been for less of an improvement to 50.0.

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.

All of the component series improved m/m with the exception of inventories. The new orders component rose to 52.1 with a 3.4 point increase that just recouped the November decline. Production also recovered its November drop and rose to 51.8 but the new export orders index fell 54.3, its lowest level since July. 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 also fell moderately.

What Will the Next Export Boom Look Like? Some Lessons from the Late 1980s from the Federal Reserve Bank of Philadelphia can be found here.

Employment also improved modestly to 49.7, the third month in the last four below the break even level of 50. 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 price index, which is not included in the composite, gave back about all of its November rise and fell to the second lowest level since 2002.

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.

ISM Manufacturing Survey December November Dec. '06 2006 2005 2004
Composite Index 51.4 49.5 55.6 53.9 55.5 60.5
Prices Index (NSA) 47.5 53.5 63.0 65.0 66.4 79.8
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