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Economy in Brief

ISM Factory Sector Index and Prices Slip
by Tom Moeller  August 1, 2018

The ISM composite index of activity in the factory sector eased to 58.1 during July from June's unrevised 60.2. Declines in the component readings were widespread. A reading of 59.2 had been expected in the Action Economics Forecast Survey. During the last ten years, there has been a 74% correlation between the index level and q/q growth in real GDP.

The new orders reading fell to 60.2, the lowest level since May of last year and down from December's expansion high of 67.4. The production figure fell to 58.5, the lowest level in three months. The supplier deliveries index declined to 62.1 indicating quicker delivery speeds after a drastic slowing during June. Working the other way, the inventories figure rose to 53.3, the highest level in four months.

The employment series improved m/m to 56.5 but remained below the high of 59.8 reached last August. Twenty-seven percent (NSA) of respondents reported improved hiring while twelve percent reported fewer jobs. During the last ten years, there has been an 85% correlation between the level of the index and the m/m change in factory sector payrolls.

The prices paid index eased to 73.2 (NSA), the lowest level in six months. It remained well above the January 2016 low, however, of 33.9 when just five percent of respondents reported higher prices and 37% reported them lower. These figures compare to last month when 55% of firms reported higher prices and eight percent reported declines.

Amongst the other ISM series which are not in the composite, the export order series fell sharply to 55.3, the lowest level in nine months and down versus February's high of 62.8. The imports index fell to 54.7, nearly the lowest level in eight months, but up from the December 2015 low of 46. The capital expenditure lead-time series declined to 137, its lowest point since November 2016.

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

ISM Mfg (SA) Jul Jun May Jul'17 2017 2016 2015
Headline Index 58.1 60.2 58.7 56.5 57.4 51.4 51.3
 New Orders 60.2 63.5 63.7 61.0 62.2 54.5 52.3
 Production 58.5 62.3 61.5 60.4 61.0 53.8 59.3
 Employment 56.5 56.0 56.3 55.8 56.8 49.2 50.7
 Supplier Deliveries 62.1 68.2 62.0 56.0 56.8 51.8 50.8
 Inventories 53.3 50.8 50.2 49.2 50.4 47.5 49.4
Prices Paid Index (NSA) 73.2 76.8 79.5 61.7 65.0 53.1 40.1
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