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Economy in Brief

U.S. ISM Index Posts Firm And Surprising Recovery
by Tom Moeller September 1, 2010

Deterioration in factory sector activity paused last month. The August Composite Index from the Institute for Supply Management rose to 56.3 from 55.2 in July after three consecutive months of decline. Consensus expectations had been for another drop to 53.0. The August level suggests expansion in factory sector activity as it is the thirteenth consecutive figure above 50 and is up from the low of 32.5 reached in December '08. (Any figure above the break-even point of 50 suggests rising activity.) The ISM data is available in Haver's USECON database.

The production and employment series improved versus July. At 60.4 the latter neared its strongest reading on record. During the last ten years there has been an 89% correlation between the ISM employment index and the m/m change in factory sector payrolls. Stronger inventory building added to these gains. Countering the improvement was a downtick in the new orders series to 53.1, a thirteen-month low, and a decline (speedup) in supplier deliveries.

Activity abroad added to earlier weakness in the U.S. The export order index fell m/m to 55.5. That was down sharply from its May high of 62.0 and was close to the lowest level since December. During the last ten years there has been an 88% correlation between the level of the index and the quarterly change in merchandise exports. Twenty percent of respondents reported higher export orders while seven percent reported lower.

The separate index of prices paid rose modestly to 61.5, its highest level in three months. It remained down from the April high of 78..0 but up from the December '08 low of 18.0. Just 35% (half the recent high) of respondents reported higher prices while a diminished 12% indicated lower prices. During the last twenty years there has been an 83% correlation between the price index and the three-month change in the PPI for intermediate goods.

The ISM data are available in Haver's USECON database

ISM Mfg August July June August '09 2009 2008 2007
Composite Index 56.3 55.5 56.2 52.8 46.2 45.5 51.1
  New Orders 53.1 53.5 58.5 63.0 51.6 42.1 54.3
  Employment 60.4 58.6 57.8 47.0 40.5 43.3 50.5
  Production 59.9 57.0 61.4 62.9 50.4 45.2 54.1
  Supplier Deliveries 56.6 58.3 57.3 56.0 51.4 51.6 51.2
  Inventories 51.4 50.2 45.8 34.9 37.1 45.5 45.4
Prices Paid Index (NSA) 61.5 57.5 57.0 65.0 48.3 66.5 64.6
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