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Economy in Brief

U.S. ISM Factory Sector Index Slips But Indicates Positive Growth
by Tom Moeller   December 01, 2010

Expansion in factory sector activity continued during November, as indicated by the Composite Index from the Institute for Supply Management. It slipped to 56.6 from 56.9 in October but the latest was the highest level since May. The figure roughly matched Consensus expectations for 56.5. The latest level was the sixteenth consecutive figure above the break-even 50 and was 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.

Weaker readings for production and new orders accounted for most of the m/m decline in the total index. Production fell sharply to its lowest level of the economic recovery as just 26 percent of firms reported higher production versus 37 percent in October. The orders index followed with a modest 2.3 point decline. Thirty percent of firms reported higher orders. The employment index held roughly stable at 57.5, its twelfth consecutive month above 50. During the last ten years there has been a 90% correlation between the index level and the m/m change in factory sector employment. At the back-end of factory sector activity both the supplier delivery and the inventories indexes rose, the latter to its highest since 1985.

Also falling was the export order index to 57.0. During the last ten years there has been an 88% correlation between the level of the index and the quarterly change in merchandise exports. A lessened twenty-three percent of respondents reported higher export orders while nine percent reported orders lower.

The separate index of prices paid fell to 69.5, its lowest since June and it remained down from the April high of 78.0 but up from the December '08 low of 18.0. Forty-eight percent of respondents reported higher prices while nine percent 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 November October September Nov.'09 2009 2008 2007
Composite Index 56.6 56.9 54.4 53.7 46.2 45.5 51.1
  New Orders 56.6 58.9 51.1 61.5 51.6 42.1 54.3
  Employment 57.5 57.7 56.5 49.6 40.5 43.3 50.5
  Production 55.0 62.7 56.5 60.2 50.4 45.2 54.1
  Supplier Deliveries 57.2 51.2 52.3 55.7 51.4 51.6 51.2
  Inventories 56.7 53.9 55.6 41.4 37.1 45.5 45.4
Prices Paid Index (NSA) 69.5 71.0 70.5 55.0 48.3 66.5 64.6
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