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Economy in Brief

ISM Manufacturing Index Strengthens to 16-Month High
by Tom Moeller  July 1, 2016

Factory sector activity continues to firm following last year's weakness. The ISM Composite Index of manufacturing activity increased to 53.2 during June following an unrevised May gain to 51.3. The latest level was the highest since February 2015, after falling as low as 48.0 in December. June's level beat expectations for 51.3 in the Action Economics Forecast Survey. The data from the Institute for Supply Management (ISM) are diffusion indexes where a reading above 50 indicates an increase in activity. During the last ten years, there has been a 74% correlation between the level of the ISM index and the q/q changed in real GDP.

Each of the component series improved last month, led by the inventories index which rose to a 9-month high. That was followed by the production series which recovered most of what it lost during the prior two months. At 57.0, the new orders series improved to the highest level since December 2014. The vendor deliveries showed the slowest delivery speeds since December 2014. The employment series, at 50.4, indicated payroll expansion for the first time since November. During the last ten years, there has been an 88% correlation between the figure and the m/m change in factory sector payrolls.

The prices paid index eased moderately m/m, but at 60.5 remained near a two-year high. Twenty-seven percent of industries reported higher prices while 6% reported that prices fell.

Other component series, not included in the composite reading, also showed improved performance. The export figure increased to 53.5, the highest level since November 2014. The imports index strengthened to 52.0. The order backlog index jumped to 52.5, the highest level since May of last year.

The figures from the Institute for Supply Management can be found in Haver's USECON database. The expectations number is in Haver's AS1REPNA database.

The Science of Monetary Policy: An Imperfect Knowledge Perspective from the Federal Reserve Bank of New York is available here.

ISM Mfg (SA) Jun May Apr Jun '15 2015 2014 2013
Composite Index 53.2 51.3 50.8 53.1 51.3 55.6 53.8
 New Orders 57.0 55.7 55.8 54.9 52.6 58.9 56.8
 Production 54.7 52.6 54.2 52.8 53.5 59.2 57.5
 Employment 50.4 49.2 49.2 55.3 51.0 54.4 53.1
 Supplier Deliveries 55.4 54.1 49.1 49.6 50.7 55.0 51.9
 Inventories 48.5 45.0 45.5 53.0 49.0 50.8 49.4
Prices Paid Index (NSA) 60.5 63.5 59.0 49.5 39.8 55.6 53.8
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