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Economy in Brief

ISM Factory Sector Index & Pricing Power Strengthen
by Tom Moeller  April 3, 2017

Improvement in factory sector momentum is building. The ISM composite index of factory sector activity at 57.0 during Q1'17 was the strongest reading in six years. The March level alone slipped to 57.2 from an unrevised 57.7 in February, but it was the seventh consecutive month above 50, indicating factory sector expansion. Expectations had called for 57.3 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.

Declines in the production and inventory indexes moved the overall index lower last month. Nevertheless, both remained up for the quarter. The new orders index also slipped in March, but was near the highest level of the economic expansion. The supplier delivery index rose and thus indicated a slower pace of product deliveries.

The employment measure strengthened to 58.9 last month. It's the highest level since June 2011, indicating net-positive jobs growth compared to declines during all of last year. Twenty-seven percent (NSA) of respondents raised employment levels while 11% 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. The March prices paid index increased to 70.5, its highest level since May 2011. Forty-seven percent of respondents raised prices, while six percent lowered them. One year earlier, 16% of firms were raising prices.

Amongst the sub-indexes, the new export series increased m/m to 59.0, a nearly three-year high. The imports index eased to 53.5, but was up sharply from twelve months earlier. The order backlog series also strengthened to a nearly three-year high.

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) Mar Feb Jan Mar'16 2016 2015 2014
Composite Index 57.2 57.7 56.0 51.7 51.5 51.4 55.6
 New Orders 64.5 65.1 60.4 57.1 54.7 52.6 58.9
 Production 57.6 62.9 61.4 55.7 54.0 53.5 59.2
 Employment 58.9 54.2 56.1 48.5 49.7 51.0 54.4
 Supplier Deliveries 55.9 54.8 53.6 50.4 51.9 50.7 55.0
 Inventories 49.0 51.5 48.5 47.0 47.2 49.0 50.8
Prices Paid Index (NSA) 70.5 68.0 69.0 51.5 53.5 39.8 55.6
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