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Economy in Brief

ISM Factory Sector Index Unchanged, Prices Surged
by Tom Moeller May 1, 2008

For April, the Institute of Supply Management (ISM) reported its Composite Index of Manufacturing Sector Activity remained unchanged from March at 48.6. That was slightly better than Consensus expectations for a decline to 48.0 but the index remained below the break even level for activity of 50 for the fourth month in the last five.

The index's average level of 49.0 so far this year was its lowest since early 2003.

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.

The new orders index also was unchanged m/m and remained below the break even level. It was near the lowest level since the recession year of 2001. Production rose very slightly but remained low at 49.1. The inventory component rose sharply to its highest level since January.

The new export orders sub-series rose slightly to a better-than-break even 57.5 and so far this year it is up slightly from the last two years.

The employment index fell sharply m/m to 45.4 which was its lowest level since mid 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.

The prices paid index surged to its highest level since early 2004. 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.

ISM Mfg April March April '07 2007 2006 2005
Composite Index 48.6 48.6 52.8 51.1 53.1 54.4
  New Orders Index 46.5 46.5 58.1 54.3 55.4 57.4
  Employment Index 45.4 49.2 52.3 50.5 51.7 53.6
Prices Paid Index (NSA) 84.5 83.5 73.0 64.6 65.0 66.4
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