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Economy in Brief

U.S. ISM Index Plunges Under Heavy Weather
by Tom Moeller  February 3, 2014

Widespread snowstorms in the U.S. helped limit factory operations last month. The Composite Index of Manufacturing Sector Activity from the Institute for Supply Management dropped sharply to 51.3 during January from a revised 56.5 in December, initially reported as 57.0. Earlier figures were revised due to new seasonal factors. The latest reading was well below expectations for a slip to 56.0 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 76% correlation between the ISM index and the q/q change in real GDP.

A lower reading for new orders provided the greatest drag on last month's factory sector activity as it fell to 51.2 from 64.4. In addition, the production component fell to 54.8 from 61.7 and employment dropped to 52.3 from 55.8. During the last ten years there has been an 88% correlation between the employment index and the m/m change in factory payrolls. Inventories were drawn down at a faster rate as indicated by the lower inventory series. It fell to 44.0, the lowest level since December 2012. Finally, the supplier delivery series moved up to 54.3 indicating the slowest product delivery speeds since June 2011.

New export orders index fell to 54.5, the lowest reading since September while the order backlog reading dropped to 48.0, its lowest level since August. Imports declined to 53.5, the lowest level in twelve months.

The prices paid index series indicated further improvement in pricing power with a rise to 60.5, the highest level since February of last year. Twenty eight percent of firms raised prices while seven 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.

Behind the Numbers: PCE Inflation Update, December 2013 from the Federal Reserve Bank of Dallas is available here.

ISM Mfg Jan Dec Nov Jan'13 2013 2012 2011
Composite Index 51.3 56.5 57.0 52.3 53.9 51.8 55.2
 New Orders 51.2 64.4 63.4 50.8 57.2 53.1 56.4
 Production 54.8 61.7 62.4 53.8 57.7 53.8 57.4
 Employment 52.3 55.8 55.4 53.8 53.2 53.8 57.4
 Supplier Deliveries 54.3 53.7 53.3 51.9 51.9 50.0 54.7
 Inventories 44.0 47.0 50.5 51.0 49.4 48.2 50.1
Prices Paid Index (NSA) 60.5 53.5 52.5 56.5 53.8 53.2 65.2
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