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Economy in Brief

ISM Index Still Low at an Expected 50.8
by Tom Moeller December 3, 2007

For November, the Institute of Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity was about unchanged from the October level. The figure of 50.8 essentially met Consensus expectations for a reading of 50.7. Data points above 50 indicates growth in factory sector activity.

Last month's PMI figure remained the lowest since January when industrial production in the factory sector fell 0.6% and the three month % change in factory sector output fell to 0.4%.

During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.

It is appropriate to correlate the ISM index level with factory sector growth because the ISM index is a diffusion index. It measures growth by being constructed using all of the absolute positive changes in activity added to one half of the no change in activity measures.

New orders, vendor deliveries & inventories, three of the index's five components, remained near the October level. The employment index, however, fell sharply in November to its lowest since 2003. 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.

Some of that decline in employment was offset by a rise in production.

The index of new export orders rose sharply m/m to 58.5, its highest level since this past May. The import index conversely remained at the October level (47.5), the lowest level since 2001. That suggests imports declined last month.

The Unsustainable US Current Account Position Revisited* is a 2005 National Bureau of Economic Research working paper by Maurice Obtsfeld & Kenneth Rogoff and the abstract from it can be found here.

The prices paid index again moved much higher, reflecting the near $11 m/m surge in Brent crude oil costs, to the highest level since July. During the last twenty years there has been a 77% correlation between the price index and the three month change in the PPI for intermediate goods.

Asian nations driving world oil prices from the Federal Reserve Bank of St. Louis is available here.

November October October'06 2006 2005 2004
Composite Index 50.8 50.9 49.9 53.9 55.5 60.5
  New Orders Index 52.6 52.5 49.7 55.4 57.4 63.5
Prices Paid Index (NSA) 67.5 63.0 53.5 65.0 66.4 79.8
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