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Economy in Brief

ISM Factory Sector Index Declines to Ten-Year Low
by Tom Moeller  October 1, 2019

Weakness continues in the factory sector. The ISM manufacturing index fell to 47.8 during September from 49.1 in August. It was the lowest level since June 2009 which was the end of the last recession. The Action Economics Forecast Survey anticipated a reading of 50.5. Since 2008, there has been a 72% correlation between the index level and quarterly growth in real GDP.

Most of the components of the ISM index deteriorated versus August. Production declined to 47.3, also the lowest level since the end of the last recession. Weakness developed as the inventory measure fell to 46.9, indicating the fourth consecutive month of inventory decumulation. The supplier deliveries suggested quicker product delivery speeds as it eased to 51.1, down from a high of 67.6 in June of 2018. Holding fairly steady m/m was the new orders figure at 47.3, though that was sharply below the high of 67.3 in December 2017.

Also moving lower was the employment index to 46.3, indicating a second consecutive month of payroll decline. A much fewer 15% (NSA) of respondents reported increased payrolls while a sharply higher 23% reported a decline. That compares to a low of six percent reporting a decline in August 2017. Since 2008, there has been an 84% correlation between the employment index and the m/m change in factory sector payrolls.

The prices paid series, which is not part of the composite index, improved slightly m/m to 49.7. That indicated price deflation for the sixth month this year. It remained below the high of 79.5 in May of 2018. A lessened 16% of respondents reported increased prices while 17% reported lower prices.

Amongst the other series in the ISM survey, the new export order index fell to 41.0, its lowest level since June 2009. The order backlog measure eased to 45.1, and continued to reflect a rapid decline in unfilled orders. The imports index edged higher m/m to 48.1, and remained near the lowest level since the middle of 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; further detail is found in the SURVEYS database. Commodity prices can be found in USECON as well as the CMDTY database. The expectations number is available in Haver's AS1REPNA database.

Are Workers Losing to Robots? from the Federal Reserve Bank of San Francisco is available here.

ISM Mfg (SA) Sep Aug Jul Sep'18 2018 2017 2016
Headline Index 47.8 49.1 51.2 59.5 58.8 57.4 51.3
 New Orders 47.3 47.2 50.8 61.5 61.4 62.2 54.5
 Production 47.3 49.5 50.8 63.1 60.7 60.9 53.8
 Employment 46.3 47.4 51.7 58.2 56.9 56.8 49.1
 Supplier Deliveries 51.1 51.4 53.3 61.6 62.0 56.8 51.8
 Inventories 46.9 49.9 49.5 53.3 52.9 50.4 47.5
Prices Paid Index (NSA) 49.7 46.0 45.1 66.9 71.7 65.0 53.1
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