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Economy in Brief

ISM Factory Sector Index Declines; Prices Rise
by Tom Moeller  November 1, 2018

The ISM composite index of activity in the factory sector fell to 57.7 in October from 59.8 in September. It was the lowest index level since April. A reading of 59.0 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 decline in the overall index included a fall in the orders series to 57.4, which was the lowest level since April of last year. The inventories index also fell sharply to 50.7, the lowest level in five months. Production slid to a four-month low of 59.9, but the supplier delivery series rose to 63.8, indicating slower product delivery speeds.

The employment index deteriorated to 56.8, but continued the trend of rising factory sector payrolls since October 2016. A lessened 23% of respondents reported rising payroll levels while a little-changed 10% reported a decline. During the last ten years there has been an 84% correlation between the employment index and the m/m change in factory sector payrolls.

The index of prices paid rose to 71.6 and made up most of the prior month's decline. It continued the rising trend in prices since March 2016. Fifty-one percent of respondents indicated higher prices while eight percent paid less.

Amongst the other ISM series, which are not seasonally adjusted, the order backlog series was steady at 55.8, down sharply from a recent high of 63.5 in May. The new export order index fell sharply to 52.2, the lowest level since November 2016. The capital expenditures index surged.

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; further detail is found in the SURVEYS database. The expectations number is available in Haver's AS1REPNA database.

ISM Mfg (SA) Oct Sep Aug Oct'17 2017 2016 2015
Headline Index 57.7 59.8 61.3 58.5 57.4 51.4 51.3
 New Orders 57.4 61.8 65.1 63.5 62.2 54.5 52.3
 Production 59.9 63.9 63.3 61.0 61.0 53.8 59.3
 Employment 56.8 58.8 58.5 59.8 56.8 49.2 50.7
 Supplier Deliveries 63.8 61.1 64.5 60.1 56.8 51.8 50.8
 Inventories 50.7 53.3 55.4 48.1 50.4 47.5 49.4
Prices Paid Index (NSA) 71.6 66.9 72.1 68.1 65.0 53.1 40.1
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