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Economy in Brief

ISM Index Flat Month-To-Month, Still Near Low
by Tom Moeller March 2, 2009

For February, the Institute for Supply Management (ISM) reported that its Composite Index of Activity in the manufacturing sector remained about unchanged at 35.8 versus the 35.6 January reading. The latest was still near the lowest level since the recession year of 1980. The break-even level for this diffusion index of factory sector activity is a level of 50.

During the last twenty years there has been a 72% correlation between the level of the Composite Index and the three-month growth in factory sector industrial production. The latest reading of the composite index suggests that the recent 10% rate of decline in industrial output will continue.

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 using all of the positive changes in activity added to one half of the zero change in activity measures.

The separate index of prices paid also was unchanged from January and still barely above the lowest level since 1949. During the last twenty years there has been a 79% correlation between the price index and the three-month change in the PPI for intermediate goods.

The February new orders index was about unchanged from January as 13% of survey participants reported higher orders but 44% reported that orders fell. The export order index also was unchanged as economic weakness outside of the U.S. continued. It was still near the lowest level in this index's short twenty year history. During the last ten years there has been a 53% correlation between the index and the q/q change in real exports of goods in the GDP accounts.

The ISM data is available in Haver's USECON database.

ISM Mfg February January February '08 2008 2007 2006
Composite Index 35.8 35.6 48.8 45.5 51.1 53.1
  New Orders Index 33.1 33.2 48.9 42.1 54.3 55.4
  Employment Index 26.1 29.9 47.0 43.2 50.5 51.7
Prices Paid Index (NSA) 29.0 29.0 75.5 66.5 64.6 65.0
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