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Economy in Brief

ISM Factory Sector Index Improves; Prices Moderate
by Tom Moeller  December 3, 2018

The ISM composite index of business activity in the factory sector increased to 59.3 during November after a decline to 57.7 in October. A reading of 57.5 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 rise in the overall index was led by a rebound in the orders series to 62.1 which reversed the October decline. The production index also rose moderately to 60.6 and the inventories gained to 52.9 but remained in the sideways trend of the last year. The supplier delivery series declined to 62.5 and continued to indicate quicker product delivery speeds than during Q3 and Q2.

The employment index rebounded to 58.4 after the prior month's slip and continued the improving trend in factory sector payrolls. A lessened 23% of respondents reported rising payroll levels while a moderated eight percent 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 November index of prices paid fell to 60.7, the lowest level since June 2017. It was down from the high of 79.5 six months earlier. A greatly lessened 32% of respondents indicated higher prices while a higher 11% paid less.

Amongst the other ISM series, which are not seasonally adjusted, the order backlog series was steady at 56.4, down sharply from a recent high of 63.5 in May. The new export order index held steady at 52.2 following a sharp decline in October. It remained at the lowest level since November 2016. The capital expenditures index remained strong.

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) Nov Oct Sep Nov'17 2017 2016 2015
Headline Index 59.3 57.7 59.8 58.2 57.4 51.4 51.3
 New Orders 62.1 57.4 61.8 63.9 62.2 54.5 52.3
 Production 60.6 59.9 63.9 64.3 61.0 53.8 59.3
 Employment 58.4 56.8 58.8 59.2 56.8 49.2 50.7
 Supplier Deliveries 62.5 63.8 61.1 56.6 56.8 51.8 50.8
 Inventories 52.9 50.7 53.3 47.1 50.4 47.5 49.4
Prices Paid Index (NSA) 60.7 71.6 66.9 64.8 65.0 53.1 40.1
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