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Economy in Brief

U.S. ISM Manufacturing Index Retraces Earlier Increase
by Tom Moeller  October 1, 2014

The Institute for Supply Management's composite index of manufacturing sector activity fell back to 56.6 in September after jumping to 59.0 in August. Despite the decline, the Q3'14 average of 57.6 was the highest since Q1'11. The decline was greater than the forecasted drop to 58.1 in the Action Economics Forecast Survey. Any figure above 50 for this measure indicates increasing manufacturing activity. Over the past decade, there has been a 75% correlation between the level of the ISM manufacturing index and the quarterly percent change in real GDP.

Weakness in last month's composite index was led by a lower new orders reading of 60.0 versus 66.7 in August. Nevertheless, the quarterly average of 63.4 was the highest since Q2'04. The employment index also weakened to 54.6 from 58.1 but the quarterly level of 57.0 showed the strongest hiring in three years. During the last ten years, there has been an 88% correlation between the index and the m/m change in factory sector payrolls. The supplier delivery index fell to 52.2 as the pace of supplier deliveries continued to quicken versus its slowest in February. The production index (64.6) was steady m/m and remained near the highest level of the economic expansion. The inventory series fell m/m to 51.5 but remained in the range in place since 2011.

The prices paid index suggested firm price pressure. Its level of 59.5 was near the average so far this year and was above 53.8 during all of last year. Twenty-eight percent of respondents reported paying higher prices while nine percent paid less. During the last ten years, there has been a 78% correlation between the index and the q/q change in the finished goods producer price index.

The new export orders index fell to nearly its lowest level (53.5) in a year. The order backlog figure (47.0) also was the lowest in just over a year. The imports index weakened to near the lowest level since Q1'13.

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 Sep Aug Jul Sep'13 2013 2012 2011
Composite Index 56.6 59.0 57.1 56.0 53.9 51.8 55.2
 New Orders 60.0 66.7 63.4 61.3 57.2 53.1 56.4
 Production 64.6 64.5 61.2 61.2 57.7 53.8 57.4
 Employment 54.6 58.1 58.2 54.8 53.2 53.8 57.4
 Supplier Deliveries 52.2 53.9 54.1 52.7 51.9 50.0 54.7
 Inventories 51.5 52.0 48.5 50.0 49.4 48.2 50.1
Prices Paid Index (NSA) 59.5 58.0 59.5 56.5 53.8 53.2 65.2
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