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Economy in Brief

ISM Factory Sector Index Strengthens; Pricing Power Eases
by Tom Moeller  March 1, 2017

Industrial sector activity remains on a strong footing. The ISM composite index of factory sector activity increased to 57.7 during February from an unrevised 56.0 in January. It was highest reading since August 2014. Expectations called for 56.0 in the Action Economics Forecast Survey. During the last ten years, there has been a 75% correlation between the ISM composite index level and the q/q change in real GDP.

A stronger new orders reading of 65.1 led the composite index higher last month. It was the firmest level since December 2013. Inventory building strengthened as the index level moved up to 51.5, the highest since June 2015. The production and supplier delivery indexes also strengthened.

The employment measure eased to 54.2 last month from January's 56.1. The reading continued to indicate, however, net-positive jobs growth compared to declines during all of last year. Twenty-one percent (NSA) of respondents raised employment levels while 13% lowered them. Twelve months earlier, 15% were raising employment. During the last ten years, there has been an 88% correlation between the jobs index and the m/m change in factory sector payrolls.

Pricing power remains strong, but the February prices paid index slipped to 68.0. It stood near the highest level since May 2011. Forty-one percent of respondents raised prices, while five percent lowered them. In February 2016, just nine percent of firms were raising prices.

Amongst the sub-indexes, the new export series improved m/m to 55.0, and remained up from 46.5 where it stood twelve months earlier. The imports index rebounded to 54.0, its highest level in nearly two years. The order backlog series jumped to 57.0, its highest level in nearly three years.

The ISM figures are diffusion indexes where a reading above 50 indicates increase. The figures from the Institute for Supply Management can be found in Haver's USECON database. The expectations number can be found in Haver's AS1REPNA database.

ISM Mfg (SA) Feb Jan Dec Feb'16 2016 2015 2014
Composite Index 57.7 56.0 54.5 49.7 51.5 51.4 55.6
 New Orders 65.1 60.4 60.3 52.1 54.7 52.6 58.9
 Production 62.9 61.4 59.4 52.9 54.0 53.5 59.2
 Employment 54.2 56.1 52.8 48.6 49.7 51.0 54.4
 Supplier Deliveries 54.8 53.6 53.0 50.0 51.9 50.7 55.0
 Inventories 51.5 48.5 47.0 45.0 47.2 49.0 50.8
Prices Paid Index (NSA) 68.0 69.0 65.5 38.5 53.5 39.8 55.6
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