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Economy in Brief

ISM Index Falls To Lowest Since Last November As Pricing Firms
by Tom Moeller  October 1, 2010

Factory sector activity expanded moderately last month, though its rate of growth actually slipped from August. The September Composite Index from the Institute for Supply Management fell to 54.4 from 56.3 pulling the index to its lowest level since last November. The decline roughly matched Consensus expectations for a drop to 54.5. Nevertheless, the latest level was the fourteenth consecutive figure above 50 and was up from the low of 32.5 reached in December '08. (Any figure above the break-even point of 50 suggests rising activity.) The ISM data is available in Haver's USECON database.

A sharp 4.3 point drop in the supplier deliveries index led the September decline indicating faster delivery speeds and, thus, growing slack in the factory sector. The employment series also fell a sharp 3.9 points to 56.5 from its recent high in August. During the last ten years there has been an 89% correlation between the ISM employment index and the m/m change in factory sector payrolls. The new orders and production indexes followed with lesser m/m declines but the index levels were at their lowest since Q2 of last year. Offsetting these declines was a jump in the inventory index to its highest level since 1984, presumably reflecting involuntary accumulation.

Slowing activity abroad added to U.S. weakness. The export order index fell m/m to 54.5. That was down sharply from its May high of 62.0 and equaled the lowest level since December. During the last ten years there has been an 88% correlation between the level of the index and the quarterly change in merchandise exports. A greatly reduced nineteen percent of respondents reported higher export orders while ten percent reported orders lower.

The separate index of prices paid surged to 70.5, its highest level since May. It remained down from the April high of 78.0 but up from the December '08 low of 18.0. Forty-five percent of respondents reported higher prices while just four percent indicated lower prices. During the last twenty years there has been a 79% correlation between the price index and the three-month change in the PPI for intermediate goods.

The ISM data are available in Haver's USECON database

ISM Mfg September August July Sept. '09 2009 2008 2007
Composite Index 54.4 56.3 55.5 52.4 46.2 45.5 51.1
  New Orders 51.1 53.1 53.5 59.9 51.6 42.1 54.3
  Employment 56.5 60.4 58.6 46.5 40.5 43.3 50.5
  Production 56.5 59.9 57.0 57.5 50.4 45.2 54.1
  Supplier Deliveries 52.3 56.6 58.3 56.8 51.4 51.6 51.2
  Inventories 55.6 51.4 50.2 41.2 37.1 45.5 45.4
Prices Paid Index (NSA) 70.5 61.5 57.5 63.5 48.3 66.5 64.6
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