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Economy in Brief

U.S. ISM Index Slips M/M Yet Remains Near Recovery High
by Tom Moeller  January 2, 2014

Last year closed out with firmness in the factory sector. The Composite Index of Manufacturing Sector Activity from the Institute for Supply Management slipped to 57.0 during December from an unrevised 57.3 in November. Nevertheless, the uptrend since a May low of 49.0 remained in place and the full-year reading of 53.9 indicated a fourth straight year of factory sector expansion. The latest reading beat expectations for a decline to 56.7, as measured by the Action Economics Survey. Any figure above 50 indicates an increasing level of activity in the factory sector. During the last ten years, there has been a 74% correlation between the ISM index and the q/q change in real GDP.

A lower reading for inventories (47.0) provided the greatest drag on last month's factory sector activity. That added to a modest easing in the level of production (62.2). Offsetting these declines was improvement both in new orders (64.2) as well as employment (56.9). During the last ten years there has been an 88% correlation between the employment index and the m/m change in factory payrolls. The supplier delivery series (54.7) recovered its November decline. The backlog of orders reading (51.5) retraced its November gain while imports were stable at 55.0.

The prices paid index series indicated slight improvement in pricing power with an uptick to 53.5. Twenty percent of firms raised prices while 13 percent lowered them. During the last ten years there has been a 67% correlation between the index and the m/m change in the intermediate producer price index.

The figures from the Institute For Supply Management (ISM) are diffusion indexes and can be found in Haver's USECON database. The expectations number is in the AS1REPNA database.

ISM Mfg Dec Nov Oct Dec'12 2013 2012 2011
Composite Index 57.0 57.3 56.4 50.2 53.9 51.7 55.2
 New Orders 64.2 63.6 60.6 49.7 57.2 52.9 56.4
 Production 62.2 62.8 60.8 53.1 57.9 53.6 57.4
 Employment 56.9 56.5 53.2 51.9 53.3 53.8 57.4
 Supplier Deliveries 54.7 53.2 54.7 53.7 52.0 50.0 54.7
 Inventories 47.0 50.5 52.5 43.0 49.4 48.2 50.1
Prices Paid Index (NSA) 53.5 52.5 55.5 55.5 53.8 53.2 65.2
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