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Economy in Brief

U.S. ISM Factory Index Weakens to Two-Year Low; Prices Decline
by Tom Moeller  October 1, 2015

Activity in the manufacturing sector is continuing to lose steam. The Composite Index from the Institute for Supply Management (ISM) fell to 50.2 during September following an unrevised decline to 51.1 in August. It remained the lowest level since May 2013. A smaller decline to 50.7 had been expected in the Action Economics Forecast Survey. During the last ten years, there has been a 73% correlation between the level of the index and the q/q change in real GDP.

Each of the component series declined m/m or was unchanged. The largest decline occurred in the production series which fell to the lowest level since May 2013. The new orders component followed, falling to the lowest point since August 2012. Each series still indicated positive growth but at sharply reduced rates. At 50.5, the employment index followed with a lesser m/m decline but it equaled a five-month low. A sharply higher 19% (NSA) of firms reduced job counts. Just 17% raised them, down from 25% three months ago. During the last ten years, there has been an 89% correlation between the index level and the m/m change in factory sector payrolls. The supplier deliveries index eased m/m, indicating slightly faster product delivery speeds. The inventories index was unchanged m/m and reflected decumulation at the quickest rate since July of last year. Twenty-three percent of companies were reducing inventories, up sharply from 15% twelve months earlier.

The prices reading declined to 39.0, the lowest level since February. Six percent of respondents indicated higher prices while 30 percent reported lower prices. During the last ten years, there has been an 85% correlation between the index and the m/m change in the core intermediate PPI.

The export order index was steady m/m, showing declines at the quickest pace since July 2012. Imports eased further to 2013 lows and the order backlog series also declined sharply.

The figures from the Institute For Supply Management (ISM) are diffusion indexes. A reading above 50 represents growth in factory sector activity. They can be found in Haver's USECON database. The expectations number is in the AS1REPNA database.

ISM Mfg (SA) Sep Aug Jul Sep '14 2014 2013 2012
Composite Index 50.2 51.1 52.7 56.1 55.7 53.8 51.7
 New Orders 50.1 51.7 56.5 59.4 59.0 56.9 52.9
 Production 51.8 53.6 56.0 62.4 59.2 57.5 53.7
 Employment 50.5 51.2 52.7 54.6 54.5 53.2 53.8
 Supplier Deliveries 50.2 50.7 48.9 52.6 55.0 51.9 50.0
 Inventories 48.5 48.5 49.5 51.5 50.8 49.4 48.2
Prices Paid Index (NSA) 38.0 39.0 44.0 59.5 55.6 53.8 53.2
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