ISM Index Fell Further

The Institute of Supply Management (ISM) reported that the December Composite Index of activity in the manufacturing sector fell for the fourth month in the last five. The sharp 3.9 point decline to 54.2 was the largest since 2002, dropped the index to the lowest level since August and exceeded Consensus expectations for a more moderate decline to 57.4.

During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.

Each of the index's five components fell last month. The 4.3 point drop in new orders was to the lowest level since July and the 3.6 point drop in production was the fourth in the last five months.

The 3.9 point decline in the employment index reversed about all of the gains during the prior three months. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.

Prices continued to rise, though an eleven point decline in the index level added to the ten point drop in November. Widespread increases in commodities prices were offset by limited declines in diesel fuel and resins. Commodities in short supply were caustic soda, plastics, resins, and steel.

The Diffusion of Personal Computers across the U.S. from the Federal Reserve Bank of San Francisco is available here.

ISM Manufacturing Survey	Dec	Nov	Dec '04	2005	2004	2003
Composite Index	54.2	58.1	57.3	55.5	60.5	53.3
New Orders Index	55.5	59.8	62.6	57.5	63.5	57.9
Prices Paid Index (NSA)	63.0	74.0	72.0	66.4	79.8	59.6