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Economy in Brief

U.S. ISM Index Increase is Driven by Higher Employment
by Tom Moeller  May 1, 2014

Factory sector activity is improving with the end of a rough winter and more hiring. The Composite Index of Manufacturing Sector Activity from the Institute for Supply Management improved to 54.9 during April from an unrevised 53.7 in March. It was the highest reading since December but remained below the November peak of 57.0. The latest reading beat expectations for 54.2 as measured by the Action Economics Forecast Survey. Any figure above 50 indicates an increasing level of factory sector activity. During the last ten years, there has been a 76% correlation between the ISM index and the q/q change in real GDP.

A sharp gain in the employment reading to 54.7 from 51.1 was the largest component increase. The latest was the highest reading since December. During the last ten years there has been an 88% correlation between the employment index and the m/m change in factory payrolls. That increase was followed by the supplier deliveries series which improved to 55.9 and recovered a piece of the March decline. The latest level continues the upward trend, showing slower delivery speeds, in place since early 2012. The inventories index also improved moderately. The new orders series was, however, unchanged and the production figure moved slightly lower. The new export orders index rose to 57.0, the highest level since November, but the imports index surged to 58.0, equaling the August high.

The prices paid index series declined to 56.5, the lowest level since December. Twenty five percent of firms raised prices while twelve 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 Apr Mar Feb Apr'13 2013 2012 2011
Composite Index 54.9 53.7 53.2 50.0 53.9 51.8 55.2
 New Orders 55.1 55.1 54.5 49.7 57.2 53.1 56.4
 Production 55.7 55.9 48.2 52.1 57.7 53.8 57.4
 Employment 54.7 51.1 52.3 50.5 53.2 53.8 57.4
 Supplier Deliveries 55.9 54.0 58.5 51.1 51.9 50.0 54.7
 Inventories 53.0 52.5 52.5 46.5 49.4 48.2 50.1
Prices Paid Index (NSA) 56.5 59.0 60.0 50.0 53.8 53.2 65.2
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