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Economy in Brief

U.S. ISM Factory Index Dips Just Slightly
by Tom Moeller  September 1, 2011

The Institute for Supply Management reported that its August Composite Index of factory sector activity dropped slightly to 50.6 from an unrevised 50.9 in July. Nevertheless, the figure was nearly the lowest since the economic recovery began two years ago. It compared favorably to Consensus expectations for a greater decline to 48.8. The reading continued to indicate positive, but slower, factory growth. It was the twenty-fifth consecutive monthly figure above the break-even level of 50 and was up from the low of 32.5 reached in December '08.

The performance of the index's five components was mixed last month. The production and employment series declined sharply and production was below break-even. During the last ten years there has been a 91% correlation between the employment series level and the m/m change in factory sector payrolls. A gain in the inventory component was accompanied by roughly stable indications for new orders and supplier delivery speeds.

The weakness in activity continued to hold back firms' ability to raise prices. The price reading of 55.5 was its lowest since November 2009. Twenty-nine percent of firms raised prices, less-than half that four months ago, while eighteen percent lowered them, the most in more than one year. During the last ten years there has been an 83% correlation between the index and the m/m change in the core intermediate producer price index.

The separate index of new export orders cratered m/m to 50.5, the lowest level since June 2009. The imports series continued to move sideways, as it has since early-last year.

The ISM figures are diffusion indexes and can be found in Haver's USECON database. The forecast data is in the AS1REPNA database.

ISM Mfg Aug Jul Jun Aug'10 2010 2009 2008
Composite Index 50.6 50.9 55.3 55.2 57.3 46.3 45.5
 New Orders 49.6 49.2 51.6 53.7 59.3 51.7 42.1
 Employment 51.8 53.5 59.9 58.2 57.3 40.6 43.1
 Production 48.6 52.3 54.5 57.2 61.1 50.5 45.1
 Supplier Deliveries 50.6 50.4 56.3 55.9 58.1 51.5 51.6
 Inventories 52.3 49.3 54.1 50.9 50.8 37.1 45.5
Prices Paid Index (NSA) 55.5 59.0 68.0 61.5 68.9 48.3 66.5
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