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Economy in Brief

ISM Manufacturing Index Weakens Further in July
by Tom Moeller  August 2, 2021

• Factory activity reading is lowest since January.

• Component movement is mixed.

• Pricing strength moderates.

The Institute for Supply Management (ISM) reported that its Composite Index of Manufacturing Sector Activity fell to 59.5 during July from 60.6 in June. It was the third decline in the last four months from a March high of 64.7. A reading of 60.9 had been expected in the Action Economics Forecast Survey. During the last 15 years, there has been a 43% correlation between the composite index and the quarterly change in real GDP. Before the recent recession, there had been a 67% correlation.

Movement amongst the component series was mostly negative in July. A lower new orders reading led last month's decline to 64.9, the lowest level in three months. The supplier deliveries reading fell to 72.5 from 75.1. It was the lowest level since February but continued to indicate slower product delivery speeds versus last year. Forty-eight percent (NSA) of respondents reported slower speeds while three percent reported a quickening. Also falling was the production measure to 58.4, the lowest reading since June of 2020. The inventories index fell to 48.9 from 51.1 and indicated inventory decumulation for the first time in three months.

The employment index rose to 52.9 during July from 49.9 in June. A slightly lessened 26.1% (NSA) of respondents reported more hiring. A lower 16.0% reported fewer jobs.

The prices paid index fell to 85.7 last month after strengthening to a near record 92.1 in June. A lessened 73.8% of respondents reported higher prices while an increased 2.4% reported them lower.

Amongst other ISM series not included in the composite, the order backlog figure rose slightly to 65.0 (NSA), but remained well below the high of 70.6 in May. The new export measure eased slightly to 55.7 from 56.2 and remained down versus a November high of 57.8. The imports index fell sharply to 53.7 after surging to 61.0 in June.

The ISM figures are based on responses from over 400 manufacturing purchasing executives from 20 industries, which correspond to their contribution to GDP in 50 states. These data 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.

Assessing Progress as the Economy Moves from Reopening to Recovery from Fed Governor Lael Brainard can be found here.

ISM Mfg (SA) Jul Jun May Jul'20 2020 2019 2018
Composite Index 59.5 60.6 61.2 53.7 52.5 51.2 58.9
 New Orders 64.9 66.0 67.0 60.9 54.0 51.2 61.6
 Production 58.4 60.8 58.5 60.6 53.8 51.3 60.9
 Employment 52.9 49.9 50.9 43.6 44.3 50.9 56.9
 Supplier Deliveries 72.5 75.1 78.8 55.9 61.6 52.9 62.0
 Inventories 48.9 51.1 50.8 47.2 48.8 49.9 52.9
Prices Paid Index (NSA) 85.7 92.1 88.0 53.2 54.0 49.1 71.7
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